Correlation Between BW Offshore and CF Industries

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

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

Diversification Opportunities for BW Offshore and CF Industries

0.0

Correlation Coefficient

BW Offshore  CF Industries

Pay attention - limited upside

The 3 months correlation between BWOFY and CF Industries is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited 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 BW Offshore 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 BW Offshore Limited 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 BW Offshore i.e., BW Offshore and CF Industries go up and down completely randomly.

Pair Corralation between BW Offshore and CF Industries

Assuming the 90 days horizon BW Offshore is expected to generate 1.45 times less return on investment than CF Industries. But when comparing it to its historical volatility, BW Offshore Limited is 1.29 times less risky than CF Industries. It trades about 0.02 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,145  in CF Industries Holdings on October 23, 2024 and sell it today you would earn a total of  1,204  from holding CF Industries Holdings or generate 14.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	84.24%
Values	Daily Returns

BW Offshore Limited  vs.  CF Industries Holdings

BW Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 BW Offshore and CF Industries

The main advantage of trading using opposite BW Offshore and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore 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 BW Offshore Limited 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.