Correlation Between CF Industries and Braskem SA

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

Diversification Opportunities for CF Industries and Braskem SA

-0.27

Correlation Coefficient

CF Industries  Braskem SA

Very good diversification

The 3 months correlation between CF Industries and Braskem is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Braskem SA Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Braskem SA Class 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 Braskem SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Braskem SA Class has no effect on the direction of CF Industries i.e., CF Industries and Braskem SA go up and down completely randomly.

Pair Corralation between CF Industries and Braskem SA

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.63 times more return on investment than Braskem SA. However, CF Industries Holdings is 1.59 times less risky than Braskem SA. It trades about 0.06 of its potential returns per unit of risk. Braskem SA Class is currently generating about -0.09 per unit of risk. If you would invest  7,957  in CF Industries Holdings on September 1, 2024 and sell it today you would earn a total of  1,009  from holding CF Industries Holdings or generate 12.68% return on investment over 90 days.

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

CF Industries Holdings  vs.  Braskem SA Class

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.

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.

Pair Trading with CF Industries and Braskem SA

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

The idea behind CF Industries Holdings and Braskem SA Class 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.