Correlation Between CF Industries and NET Power

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

Diversification Opportunities for CF Industries and NET Power

0.34

Correlation Coefficient

CF Industries  NET Power

Weak diversification

The 3 months correlation between CF Industries and NET is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and NET Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NET Power 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 NET Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NET Power has no effect on the direction of CF Industries i.e., CF Industries and NET Power go up and down completely randomly.

Pair Corralation between CF Industries and NET Power

Allowing for the 90-day total investment horizon CF Industries is expected to generate 1.69 times less return on investment than NET Power. But when comparing it to its historical volatility, CF Industries Holdings is 2.26 times less risky than NET Power. It trades about 0.04 of its potential returns per unit of risk. NET Power is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  979.00  in NET Power on October 6, 2024 and sell it today you would earn a total of  145.00  from holding NET Power or generate 14.81% return on investment over 90 days.

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

CF Industries Holdings  vs.  NET Power

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.

NET Power

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NET Power are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, NET Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and NET Power

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

The idea behind CF Industries Holdings and NET Power 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.