Correlation Between Spectrum Brands and CF Industries

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

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

Diversification Opportunities for Spectrum Brands and CF Industries

0.8

Correlation Coefficient

Spectrum Brands  CF Industries

Very poor diversification

The 3 months correlation between Spectrum and CF Industries is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings 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 Spectrum Brands 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 Spectrum Brands Holdings 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 Spectrum Brands i.e., Spectrum Brands and CF Industries go up and down completely randomly.

Pair Corralation between Spectrum Brands and CF Industries

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to under-perform the CF Industries. But the stock apears to be less risky and, when comparing its historical volatility, Spectrum Brands Holdings is 1.47 times less risky than CF Industries. The stock trades about -0.18 of its potential returns per unit of risk. The CF Industries Holdings is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  8,433  in CF Industries Holdings on December 22, 2024 and sell it today you would lose (755.00) from holding CF Industries Holdings or give up 8.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Spectrum Brands Holdings  vs.  CF Industries Holdings

Spectrum Brands Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Spectrum Brands and CF Industries

The main advantage of trading using opposite Spectrum Brands and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spectrum Brands 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 Spectrum Brands Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.