Correlation Between CF Industries and HNI Corp

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

Diversification Opportunities for CF Industries and HNI Corp

0.61

Correlation Coefficient

CF Industries  HNI Corp

Poor diversification

The 3 months correlation between CF Industries and HNI is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and HNI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNI 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 HNI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNI Corp has no effect on the direction of CF Industries i.e., CF Industries and HNI Corp go up and down completely randomly.

Pair Corralation between CF Industries and HNI Corp

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 1.24 times more return on investment than HNI Corp. However, CF Industries is 1.24 times more volatile than HNI Corp. It trades about -0.1 of its potential returns per unit of risk. HNI Corp is currently generating about -0.22 per unit of risk. If you would invest  8,754  in CF Industries Holdings on September 20, 2024 and sell it today you would lose (372.00) from holding CF Industries Holdings or give up 4.25% of portfolio value over 90 days.

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

CF Industries Holdings  vs.  HNI Corp

CF Industries Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 3 (%) 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.

HNI Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days HNI Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, HNI Corp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CF Industries and HNI Corp

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

The idea behind CF Industries Holdings and HNI 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 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.