Correlation Between CF Industries and Perseus Mining

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

Diversification Opportunities for CF Industries and Perseus Mining

-0.4

Correlation Coefficient

CF Industries  Perseus Mining

Very good diversification

The 3 months correlation between CF Industries and Perseus is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Perseus Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perseus Mining 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 Perseus Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perseus Mining has no effect on the direction of CF Industries i.e., CF Industries and Perseus Mining go up and down completely randomly.

Pair Corralation between CF Industries and Perseus Mining

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.64 times more return on investment than Perseus Mining. However, CF Industries Holdings is 1.56 times less risky than Perseus Mining. It trades about 0.15 of its potential returns per unit of risk. Perseus Mining Limited is currently generating about -0.04 per unit of risk. If you would invest  8,143  in CF Industries Holdings on October 26, 2024 and sell it today you would earn a total of  1,381  from holding CF Industries Holdings or generate 16.96% return on investment over 90 days.

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

CF Industries Holdings  vs.  Perseus Mining Limited

CF Industries Holdings

Risk-Adjusted Performance

11 of 100

OK

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.

Perseus Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CF Industries and Perseus Mining

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

The idea behind CF Industries Holdings and Perseus Mining Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.