Correlation Between CF Industries and Corteva

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

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

Diversification Opportunities for CF Industries and Corteva

0.71

Correlation Coefficient

CF Industries  Corteva

Poor diversification

The 3 months correlation between C4F and Corteva is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Corteva in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corteva and CF Industries 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 CF Industries Holdings are associated (or correlated) with Corteva. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corteva has no effect on the direction of CF Industries i.e., CF Industries and Corteva go up and down completely randomly.

Pair Corralation between CF Industries and Corteva

Assuming the 90 days horizon CF Industries Holdings is expected to generate 0.85 times more return on investment than Corteva. However, CF Industries Holdings is 1.18 times less risky than Corteva. It trades about 0.24 of its potential returns per unit of risk. Corteva is currently generating about 0.16 per unit of risk. If you would invest  7,004  in CF Industries Holdings on September 5, 2024 and sell it today you would earn a total of  1,680  from holding CF Industries Holdings or generate 23.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

CF Industries Holdings  vs.  Corteva

CF Industries Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 18 (%) 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.

Corteva

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Corteva are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Corteva unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Corteva

The main advantage of trading using opposite CF Industries and Corteva positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Corteva 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 Corteva will offset losses from the drop in Corteva's long position.

The idea behind CF Industries Holdings and Corteva 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.