Correlation Between Old Market and CF Industries

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

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

Diversification Opportunities for Old Market and CF Industries

-0.11

Correlation Coefficient

Old Market  CF Industries

Good diversification

The 3 months correlation between Old and CF Industries is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Old Market Capital 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 Old Market 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 Old Market Capital 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 Old Market i.e., Old Market and CF Industries go up and down completely randomly.

Pair Corralation between Old Market and CF Industries

Given the investment horizon of 90 days Old Market is expected to generate 1.83 times less return on investment than CF Industries. But when comparing it to its historical volatility, Old Market Capital is 1.25 times less risky than CF Industries. It trades about 0.12 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,471  in CF Industries Holdings on September 14, 2024 and sell it today you would earn a total of  511.00  from holding CF Industries Holdings or generate 6.03% return on investment over 90 days.

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

Old Market Capital  vs.  CF Industries Holdings

Old Market Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Old Market Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Old Market is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

CF Industries Holdings

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent 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 Old Market and CF Industries

The main advantage of trading using opposite Old Market and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old Market 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 Old Market Capital 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.