Correlation Between CF Industries and Kingboard Chemical

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

Diversification Opportunities for CF Industries and Kingboard Chemical

-0.07

Correlation Coefficient

CF Industries  Kingboard Chemical

Good diversification

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

Pair Corralation between CF Industries and Kingboard Chemical

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the Kingboard Chemical. In addition to that, CF Industries is 1.27 times more volatile than Kingboard Chemical Holdings. It trades about -0.06 of its total potential returns per unit of risk. Kingboard Chemical Holdings is currently generating about 0.13 per unit of volatility. If you would invest  1,165  in Kingboard Chemical Holdings on December 24, 2024 and sell it today you would earn a total of  172.00  from holding Kingboard Chemical Holdings or generate 14.76% return on investment over 90 days.

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

CF Industries Holdings  vs.  Kingboard Chemical Holdings

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.

Kingboard Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kingboard Chemical Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental indicators, Kingboard Chemical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Kingboard Chemical

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

The idea behind CF Industries Holdings and Kingboard Chemical 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.