Correlation Between CF Industries and Talon Energy

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

Diversification Opportunities for CF Industries and Talon Energy

0.16

Correlation Coefficient

CF Industries  Talon Energy

Average diversification

The 3 months correlation between CF Industries and Talon is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Talon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talon Energy 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 Talon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talon Energy has no effect on the direction of CF Industries i.e., CF Industries and Talon Energy go up and down completely randomly.

Pair Corralation between CF Industries and Talon Energy

Allowing for the 90-day total investment horizon CF Industries is expected to generate 308.76 times less return on investment than Talon Energy. But when comparing it to its historical volatility, CF Industries Holdings is 47.48 times less risky than Talon Energy. It trades about 0.01 of its potential returns per unit of risk. Talon Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.50  in Talon Energy on October 3, 2024 and sell it today you would earn a total of  4.50  from holding Talon Energy or generate 900.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	26.67%
Values	Daily Returns

CF Industries Holdings  vs.  Talon Energy

CF Industries Holdings

Risk-Adjusted Performance

0 of 100

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 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.

Talon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Talon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Talon Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CF Industries and Talon Energy

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

The idea behind CF Industries Holdings and Talon Energy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.