Correlation Between CF Industries and Ultra Clean

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

Diversification Opportunities for CF Industries and Ultra Clean

0.58

Correlation Coefficient

CF Industries  Ultra Clean

Very weak diversification

The 3 months correlation between CF Industries and Ultra is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Ultra Clean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Clean Holdings 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 Ultra Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Clean Holdings has no effect on the direction of CF Industries i.e., CF Industries and Ultra Clean go up and down completely randomly.

Pair Corralation between CF Industries and Ultra Clean

Allowing for the 90-day total investment horizon CF Industries is expected to generate 2.02 times less return on investment than Ultra Clean. But when comparing it to its historical volatility, CF Industries Holdings is 1.53 times less risky than Ultra Clean. It trades about 0.02 of its potential returns per unit of risk. Ultra Clean Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,237  in Ultra Clean Holdings on October 9, 2024 and sell it today you would earn a total of  664.00  from holding Ultra Clean Holdings or generate 20.51% return on investment over 90 days.

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

CF Industries Holdings  vs.  Ultra Clean Holdings

CF Industries Holdings

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 3 (%) 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.

Ultra Clean Holdings

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Clean Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ultra Clean is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CF Industries and Ultra Clean

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

The idea behind CF Industries Holdings and Ultra Clean Holdings 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.