Correlation Between CF Industries and China BlueChemical

Can any of the company-specific risk be diversified away by investing in both CF Industries and China BlueChemical 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 China BlueChemical 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 China BlueChemical, you can compare the effects of market volatilities on CF Industries and China BlueChemical 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 China BlueChemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and China BlueChemical.

Diversification Opportunities for CF Industries and China BlueChemical

0.61

Correlation Coefficient

CF Industries  China BlueChemical

Poor diversification

The 3 months correlation between C4F and China is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and China BlueChemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China BlueChemical 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 China BlueChemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China BlueChemical has no effect on the direction of CF Industries i.e., CF Industries and China BlueChemical go up and down completely randomly.

Pair Corralation between CF Industries and China BlueChemical

Assuming the 90 days horizon CF Industries Holdings is expected to generate 0.83 times more return on investment than China BlueChemical. However, CF Industries Holdings is 1.21 times less risky than China BlueChemical. It trades about -0.08 of its potential returns per unit of risk. China BlueChemical is currently generating about -0.07 per unit of risk. If you would invest  8,000  in CF Industries Holdings on December 28, 2024 and sell it today you would lose (1,047) from holding CF Industries Holdings or give up 13.09% of portfolio value over 90 days.

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

CF Industries Holdings  vs.  China BlueChemical

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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

China BlueChemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days China BlueChemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CF Industries and China BlueChemical

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

The idea behind CF Industries Holdings and China BlueChemical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.