Correlation Between Diamond Estates and CF Industries
Can any of the company-specific risk be diversified away by investing in both Diamond Estates and CF Industries at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Diamond Estates and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diamond Estates Wines and CF Industries Holdings, you can compare the effects of market volatilities on Diamond Estates and CF Industries and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Diamond Estates with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Estates and CF Industries.
Diversification Opportunities for Diamond Estates and CF Industries
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Diamond and CF Industries is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Estates Wines and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings and Diamond Estates is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Diamond Estates Wines are associated (or correlated) with CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of Diamond Estates i.e., Diamond Estates and CF Industries go up and down completely randomly.
Pair Corralation between Diamond Estates and CF Industries
Assuming the 90 days horizon Diamond Estates Wines is expected to under-perform the CF Industries. In addition to that, Diamond Estates is 2.43 times more volatile than CF Industries Holdings. It trades about -0.07 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.05 per unit of volatility. If you would invest 6,682 in CF Industries Holdings on August 27, 2024 and sell it today you would earn a total of 2,297 from holding CF Industries Holdings or generate 34.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diamond Estates Wines vs. CF Industries Holdings
Performance |
| Timeline |
| Diamond Estates Wines |
| CF Industries Holdings |
Diamond Estates and CF Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diamond Estates and CF Industries
The main advantage of trading using opposite Diamond Estates and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Estates position performs unexpectedly, CF Industries can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CF Industries will offset losses from the drop in CF Industries' long position.The idea behind Diamond Estates Wines and CF Industries Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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