Correlation Between CF Industries and Modine Manufacturing

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

Diversification Opportunities for CF Industries and Modine Manufacturing

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between CF Industries and Modine is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing 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 Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of CF Industries i.e., CF Industries and Modine Manufacturing go up and down completely randomly.

Pair Corralation between CF Industries and Modine Manufacturing

Allowing for the 90-day total investment horizon CF Industries is expected to generate 3.79 times less return on investment than Modine Manufacturing. But when comparing it to its historical volatility, CF Industries Holdings is 2.25 times less risky than Modine Manufacturing. It trades about 0.05 of its potential returns per unit of risk. Modine Manufacturing is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,474  in Modine Manufacturing on October 9, 2024 and sell it today you would earn a total of  5,688  from holding Modine Manufacturing or generate 87.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

CF Industries Holdings  vs.  Modine Manufacturing

 Performance 
       Timeline  
CF Industries Holdings 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Modine Manufacturing 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Modine Manufacturing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

CF Industries and Modine Manufacturing Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CF Industries and Modine Manufacturing

The main advantage of trading using opposite CF Industries and Modine Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Modine Manufacturing 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 Modine Manufacturing will offset losses from the drop in Modine Manufacturing's long position.
The idea behind CF Industries Holdings and Modine Manufacturing 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.
Check out your portfolio center.
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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