Correlation Between Australian Agricultural and CF Industries

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

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

Diversification Opportunities for Australian Agricultural and CF Industries

-0.64

Correlation Coefficient

Australian Agricultural  CF Industries

Excellent diversification

The 3 months correlation between Australian and C4F is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural i.e., Australian Agricultural and CF Industries go up and down completely randomly.

Pair Corralation between Australian Agricultural and CF Industries

Assuming the 90 days horizon Australian Agricultural is expected to under-perform the CF Industries. In addition to that, Australian Agricultural is 1.02 times more volatile than CF Industries Holdings. It trades about -0.02 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.03 per unit of volatility. If you would invest  7,506  in CF Industries Holdings on October 25, 2024 and sell it today you would earn a total of  1,479  from holding CF Industries Holdings or generate 19.7% return on investment over 90 days.

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

Australian Agricultural  vs.  CF Industries Holdings

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

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

CF Industries Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Agricultural and CF Industries

The main advantage of trading using opposite Australian Agricultural and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural 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 Australian Agricultural 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.