Correlation Between Lavoro Limited and CF Industries

Can any of the company-specific risk be diversified away by investing in both Lavoro Limited and CF Industries 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 Lavoro Limited and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lavoro Limited Class and CF Industries Holdings, you can compare the effects of market volatilities on Lavoro Limited and CF Industries 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 Lavoro Limited with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lavoro Limited and CF Industries.

Diversification Opportunities for Lavoro Limited and CF Industries

-0.11

Correlation Coefficient

Lavoro Limited  CF Industries

Good diversification

The 3 months correlation between Lavoro and CF Industries is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Lavoro Limited Class and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings and Lavoro Limited 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 Lavoro Limited Class are associated (or correlated) with CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of Lavoro Limited i.e., Lavoro Limited and CF Industries go up and down completely randomly.

Pair Corralation between Lavoro Limited and CF Industries

Given the investment horizon of 90 days Lavoro Limited is expected to generate 1.48 times less return on investment than CF Industries. In addition to that, Lavoro Limited is 3.33 times more volatile than CF Industries Holdings. It trades about 0.03 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.15 per unit of volatility. If you would invest  7,865  in CF Industries Holdings on September 1, 2024 and sell it today you would earn a total of  1,101  from holding CF Industries Holdings or generate 14.0% return on investment over 90 days.

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

Lavoro Limited Class  vs.  CF Industries Holdings

Lavoro Limited Class

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lavoro Limited Class are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Lavoro Limited may actually be approaching a critical reversion point that can send shares even higher in December 2024.

CF Industries Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 11 (%) 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.

Pair Trading with Lavoro Limited and CF Industries

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

The idea behind Lavoro Limited Class and CF Industries 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .