Correlation Between CF Industries and West Fraser

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

Diversification Opportunities for CF Industries and West Fraser

0.54

Correlation Coefficient

CF Industries  West Fraser

Very weak diversification

The 3 months correlation between CF Industries and West is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and West Fraser Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Fraser Timber 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 West Fraser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Fraser Timber has no effect on the direction of CF Industries i.e., CF Industries and West Fraser go up and down completely randomly.

Pair Corralation between CF Industries and West Fraser

Allowing for the 90-day total investment horizon CF Industries is expected to generate 1.79 times less return on investment than West Fraser. In addition to that, CF Industries is 1.07 times more volatile than West Fraser Timber. It trades about 0.01 of its total potential returns per unit of risk. West Fraser Timber is currently generating about 0.02 per unit of volatility. If you would invest  7,231  in West Fraser Timber on November 28, 2024 and sell it today you would earn a total of  693.00  from holding West Fraser Timber or generate 9.58% 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.  West Fraser Timber

CF Industries Holdings

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

West Fraser Timber

Risk-Adjusted Performance

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CF Industries and West Fraser

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

The idea behind CF Industries Holdings and West Fraser Timber 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.