Correlation Between Lifeway Foods and CF Industries

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

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

Diversification Opportunities for Lifeway Foods and CF Industries

-0.58

Correlation Coefficient

Lifeway Foods  CF Industries

Excellent diversification

The 3 months correlation between Lifeway and C4F is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods i.e., Lifeway Foods and CF Industries go up and down completely randomly.

Pair Corralation between Lifeway Foods and CF Industries

Assuming the 90 days horizon Lifeway Foods is expected to generate 2.54 times more return on investment than CF Industries. However, Lifeway Foods is 2.54 times more volatile than CF Industries Holdings. It trades about 0.08 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.03 per unit of risk. If you would invest  505.00  in Lifeway Foods on October 25, 2024 and sell it today you would earn a total of  1,675  from holding Lifeway Foods or generate 331.68% return on investment over 90 days.

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

Lifeway Foods  vs.  CF Industries Holdings

Lifeway Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifeway Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 uncertain basic indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lifeway Foods and CF Industries

The main advantage of trading using opposite Lifeway Foods and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lifeway Foods 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 Lifeway Foods 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.