Correlation Between CF Industries and ESH Acquisition

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

Diversification Opportunities for CF Industries and ESH Acquisition

-0.07

Correlation Coefficient

CF Industries  ESH Acquisition

Good diversification

The 3 months correlation between CF Industries and ESH is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and ESH Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESH Acquisition Corp 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 ESH Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESH Acquisition Corp has no effect on the direction of CF Industries i.e., CF Industries and ESH Acquisition go up and down completely randomly.

Pair Corralation between CF Industries and ESH Acquisition

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 2.07 times more return on investment than ESH Acquisition. However, CF Industries is 2.07 times more volatile than ESH Acquisition Corp. It trades about -0.05 of its potential returns per unit of risk. ESH Acquisition Corp is currently generating about -0.12 per unit of risk. If you would invest  8,433  in CF Industries Holdings on December 21, 2024 and sell it today you would lose (741.00) from holding CF Industries Holdings or give up 8.79% of portfolio value over 90 days.

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

CF Industries Holdings  vs.  ESH Acquisition Corp

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

ESH Acquisition Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESH Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CF Industries and ESH Acquisition

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

The idea behind CF Industries Holdings and ESH Acquisition Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.