Correlation Between Timken and CF Industries

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

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

Diversification Opportunities for Timken and CF Industries

-0.28

Correlation Coefficient

Timken  CF Industries

Very good diversification

The 3 months correlation between Timken and CF Industries is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company 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 Timken 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 Timken Company 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 Timken i.e., Timken and CF Industries go up and down completely randomly.

Pair Corralation between Timken and CF Industries

Considering the 90-day investment horizon Timken is expected to generate 1.39 times less return on investment than CF Industries. In addition to that, Timken is 1.04 times more volatile than CF Industries Holdings. It trades about 0.01 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.02 per unit of volatility. If you would invest  8,155  in CF Industries Holdings on October 10, 2024 and sell it today you would earn a total of  720.00  from holding CF Industries Holdings or generate 8.83% return on investment over 90 days.

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

Timken Company  vs.  CF Industries Holdings

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's forward-looking signals remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

CF Industries Holdings

Risk-Adjusted Performance

0 of 100

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 nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Timken and CF Industries

The main advantage of trading using opposite Timken and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken 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 Timken Company 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.