Correlation Between CF Industries and BHPA

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

Diversification Opportunities for CF Industries and BHPA

0.27

Correlation Coefficient

CF Industries  BHPA

Modest diversification

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

Pair Corralation between CF Industries and BHPA

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.12 times more return on investment than BHPA. However, CF Industries Holdings is 8.38 times less risky than BHPA. It trades about 0.15 of its potential returns per unit of risk. BHPA Inc is currently generating about 0.01 per unit of risk. If you would invest  7,725  in CF Industries Holdings on September 12, 2024 and sell it today you would earn a total of  1,159  from holding CF Industries Holdings or generate 15.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

CF Industries Holdings  vs.  BHPA Inc

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.

BHPA Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHPA Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BHPA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CF Industries and BHPA

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

The idea behind CF Industries Holdings and BHPA Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.