Correlation Between CF Industries and PACCAR

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

Diversification Opportunities for CF Industries and PACCAR

0.68

Correlation Coefficient

CF Industries  PACCAR

Poor diversification

The 3 months correlation between CF Industries and PACCAR is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of CF Industries i.e., CF Industries and PACCAR go up and down completely randomly.

Pair Corralation between CF Industries and PACCAR

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the PACCAR. In addition to that, CF Industries is 1.41 times more volatile than PACCAR Inc. It trades about -0.05 of its total potential returns per unit of risk. PACCAR Inc is currently generating about -0.06 per unit of volatility. If you would invest  10,437  in PACCAR Inc on December 22, 2024 and sell it today you would lose (726.00) from holding PACCAR Inc or give up 6.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

CF Industries Holdings  vs.  PACCAR Inc

CF Industries Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF Industries Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

PACCAR Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days PACCAR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with CF Industries and PACCAR

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

The idea behind CF Industries Holdings and PACCAR 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.