Correlation Between CF Industries and Knife River

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

Diversification Opportunities for CF Industries and Knife River

0.23

Correlation Coefficient

CF Industries  Knife River

Modest diversification

The 3 months correlation between CF Industries and Knife is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River 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 Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of CF Industries i.e., CF Industries and Knife River go up and down completely randomly.

Pair Corralation between CF Industries and Knife River

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.58 times more return on investment than Knife River. However, CF Industries Holdings is 1.73 times less risky than Knife River. It trades about -0.03 of its potential returns per unit of risk. Knife River is currently generating about -0.03 per unit of risk. If you would invest  8,937  in CF Industries Holdings on October 6, 2024 and sell it today you would lose (86.00) from holding CF Industries Holdings or give up 0.96% of portfolio value over 90 days.

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

CF Industries Holdings  vs.  Knife River

CF Industries Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 1 (%) 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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Knife River

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knife River are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Knife River reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Knife River

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

The idea behind CF Industries Holdings and Knife River 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.