Correlation Between CF Industries and Itafos

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

Diversification Opportunities for CF Industries and Itafos

-0.14

Correlation Coefficient

CF Industries  Itafos

Good diversification

The 3 months correlation between CF Industries and Itafos is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Itafos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itafos Inc 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 Itafos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itafos Inc has no effect on the direction of CF Industries i.e., CF Industries and Itafos go up and down completely randomly.

Pair Corralation between CF Industries and Itafos

Allowing for the 90-day total investment horizon CF Industries is expected to generate 2.71 times less return on investment than Itafos. But when comparing it to its historical volatility, CF Industries Holdings is 1.76 times less risky than Itafos. It trades about 0.02 of its potential returns per unit of risk. Itafos Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  105.00  in Itafos Inc on October 8, 2024 and sell it today you would earn a total of  20.00  from holding Itafos Inc or generate 19.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

CF Industries Holdings  vs.  Itafos Inc

CF Industries Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 2 (%) 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.

Itafos Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Itafos Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Itafos may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CF Industries and Itafos

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

The idea behind CF Industries Holdings and Itafos Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.