Correlation Between CF Industries and Pentair PLC

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

Diversification Opportunities for CF Industries and Pentair PLC

0.57

Correlation Coefficient

CF Industries  Pentair PLC

Very weak diversification

The 3 months correlation between CF Industries and Pentair is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC 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 Pentair PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair PLC has no effect on the direction of CF Industries i.e., CF Industries and Pentair PLC go up and down completely randomly.

Pair Corralation between CF Industries and Pentair PLC

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the Pentair PLC. In addition to that, CF Industries is 1.43 times more volatile than Pentair PLC. It trades about -0.17 of its total potential returns per unit of risk. Pentair PLC is currently generating about -0.15 per unit of volatility. If you would invest  10,605  in Pentair PLC on September 22, 2024 and sell it today you would lose (410.00) from holding Pentair PLC or give up 3.87% of portfolio value over 90 days.

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

CF Industries Holdings  vs.  Pentair PLC

CF Industries Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 2 (%) 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.

Pentair PLC

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pentair PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Pentair PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CF Industries and Pentair PLC

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

The idea behind CF Industries Holdings and Pentair PLC 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.