Correlation Between CF Industries and New Era

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

Diversification Opportunities for CF Industries and New Era

0.07

Correlation Coefficient

CF Industries  New Era

Significant diversification

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

Pair Corralation between CF Industries and New Era

Allowing for the 90-day total investment horizon CF Industries is expected to generate 29.05 times less return on investment than New Era. But when comparing it to its historical volatility, CF Industries Holdings is 10.87 times less risky than New Era. It trades about 0.03 of its potential returns per unit of risk. New Era Helium is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  40.00  in New Era Helium on October 22, 2024 and sell it today you would lose (3.00) from holding New Era Helium or give up 7.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	5.65%
Values	Daily Returns

CF Industries Holdings  vs.  New Era Helium

CF Industries Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

New Era Helium

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Era Helium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, New Era showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and New Era

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

The idea behind CF Industries Holdings and New Era Helium 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.