Correlation Between CF Industries and Altria

Can any of the company-specific risk be diversified away by investing in both CF Industries and Altria 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 Altria 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 Altria Group 995, you can compare the effects of market volatilities on CF Industries and Altria 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 Altria. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and Altria.

Diversification Opportunities for CF Industries and Altria

-0.09

Correlation Coefficient

CF Industries  Altria

Good diversification

The 3 months correlation between CF Industries and Altria is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Altria Group 995 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altria Group 995 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 Altria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altria Group 995 has no effect on the direction of CF Industries i.e., CF Industries and Altria go up and down completely randomly.

Pair Corralation between CF Industries and Altria

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 1.13 times more return on investment than Altria. However, CF Industries is 1.13 times more volatile than Altria Group 995. It trades about 0.12 of its potential returns per unit of risk. Altria Group 995 is currently generating about -0.1 per unit of risk. If you would invest  8,273  in CF Industries Holdings on October 24, 2024 and sell it today you would earn a total of  1,078  from holding CF Industries Holdings or generate 13.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	61.67%
Values	Daily Returns

CF Industries Holdings  vs.  Altria Group 995

CF Industries Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 9 (%) 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.

Altria Group 995

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Altria Group 995 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Altria Group 995 investors.

Pair Trading with CF Industries and Altria

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

The idea behind CF Industries Holdings and Altria Group 995 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.