Correlation Between Braskem SA and CF Industries

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

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

Diversification Opportunities for Braskem SA and CF Industries

-0.27

Correlation Coefficient

Braskem SA  CF Industries

Very good diversification

The 3 months correlation between Braskem and CF Industries is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Braskem SA Class 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 Braskem SA 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 Braskem SA Class 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 Braskem SA i.e., Braskem SA and CF Industries go up and down completely randomly.

Pair Corralation between Braskem SA and CF Industries

Considering the 90-day investment horizon Braskem SA Class is expected to under-perform the CF Industries. In addition to that, Braskem SA is 1.53 times more volatile than CF Industries Holdings. It trades about -0.34 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.27 per unit of volatility. If you would invest  8,175  in CF Industries Holdings on September 1, 2024 and sell it today you would earn a total of  791.00  from holding CF Industries Holdings or generate 9.68% return on investment over 90 days.

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

Braskem SA Class  vs.  CF Industries Holdings

Braskem SA Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Braskem SA Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 weak technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Braskem SA and CF Industries

The main advantage of trading using opposite Braskem SA and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Braskem SA 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 Braskem SA Class 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.