Correlation Between CF Industries and Delek Drilling

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

Diversification Opportunities for CF Industries and Delek Drilling

0.48

Correlation Coefficient

CF Industries  Delek Drilling

Very weak diversification

The 3 months correlation between CF Industries and Delek is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Delek Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delek Drilling 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 Delek Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delek Drilling has no effect on the direction of CF Industries i.e., CF Industries and Delek Drilling go up and down completely randomly.

Pair Corralation between CF Industries and Delek Drilling

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the Delek Drilling. But the stock apears to be less risky and, when comparing its historical volatility, CF Industries Holdings is 1.28 times less risky than Delek Drilling. The stock trades about -0.01 of its potential returns per unit of risk. The Delek Drilling is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  311.00  in Delek Drilling on September 19, 2024 and sell it today you would earn a total of  17.00  from holding Delek Drilling or generate 5.47% 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.  Delek Drilling

CF Industries Holdings

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 4 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Delek Drilling

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Delek Drilling are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Delek Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Delek Drilling

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

The idea behind CF Industries Holdings and Delek Drilling 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.