Correlation Between CF Industries and Biglari Holdings

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

Diversification Opportunities for CF Industries and Biglari Holdings

0.45

Correlation Coefficient

CF Industries  Biglari Holdings

Very weak diversification

The 3 months correlation between CF Industries and Biglari is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Biglari Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biglari Holdings 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 Biglari Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biglari Holdings has no effect on the direction of CF Industries i.e., CF Industries and Biglari Holdings go up and down completely randomly.

Pair Corralation between CF Industries and Biglari Holdings

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the Biglari Holdings. But the stock apears to be less risky and, when comparing its historical volatility, CF Industries Holdings is 2.0 times less risky than Biglari Holdings. The stock trades about -0.06 of its potential returns per unit of risk. The Biglari Holdings is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  20,698  in Biglari Holdings on September 26, 2024 and sell it today you would earn a total of  5,757  from holding Biglari Holdings or generate 27.81% return on investment over 90 days.

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

CF Industries Holdings  vs.  Biglari Holdings

CF Industries Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Biglari Holdings

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Biglari Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Biglari Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Biglari Holdings

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

The idea behind CF Industries Holdings and Biglari 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.