Correlation Between Nutrien and CF Industries

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

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

Diversification Opportunities for Nutrien and CF Industries

0.42

Correlation Coefficient

Nutrien  CF Industries

Very weak diversification

The 3 months correlation between Nutrien and CF Industries is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Nutrien 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 Nutrien 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 Nutrien 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 Nutrien i.e., Nutrien and CF Industries go up and down completely randomly.

Pair Corralation between Nutrien and CF Industries

Considering the 90-day investment horizon Nutrien is expected to under-perform the CF Industries. But the stock apears to be less risky and, when comparing its historical volatility, Nutrien is 1.21 times less risky than CF Industries. The stock trades about -0.31 of its potential returns per unit of risk. The CF Industries Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,591  in CF Industries Holdings on September 3, 2024 and sell it today you would earn a total of  375.00  from holding CF Industries Holdings or generate 4.37% return on investment over 90 days.

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

Nutrien  vs.  CF Industries Holdings

Nutrien

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nutrien are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nutrien is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

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 Nutrien and CF Industries

The main advantage of trading using opposite Nutrien and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nutrien 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 Nutrien 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.