Correlation Between Avient Corp and CF Industries

Can any of the company-specific risk be diversified away by investing in both Avient Corp 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 Avient Corp and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Avient Corp and CF Industries Holdings, you can compare the effects of market volatilities on Avient Corp 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 Avient Corp with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avient Corp and CF Industries.

Diversification Opportunities for Avient Corp and CF Industries

0.25

Correlation Coefficient

Avient Corp  CF Industries

Modest diversification

The 3 months correlation between Avient and CF Industries is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Avient Corp 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 Avient Corp 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 Avient Corp 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 Avient Corp i.e., Avient Corp and CF Industries go up and down completely randomly.

Pair Corralation between Avient Corp and CF Industries

Given the investment horizon of 90 days Avient Corp is expected to under-perform the CF Industries. But the stock apears to be less risky and, when comparing its historical volatility, Avient Corp is 1.29 times less risky than CF Industries. The stock trades about -0.06 of its potential returns per unit of risk. The CF Industries Holdings is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  8,351  in CF Industries Holdings on December 30, 2024 and sell it today you would lose (612.00) from holding CF Industries Holdings or give up 7.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Avient Corp  vs.  CF Industries Holdings

Avient Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avient Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

CF Industries Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF Industries Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Avient Corp and CF Industries

The main advantage of trading using opposite Avient Corp and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avient Corp 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 Avient Corp 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.