Correlation Between Valhi and CF Industries

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

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

Diversification Opportunities for Valhi and CF Industries

-0.47

Correlation Coefficient

Valhi  CF Industries

Very good diversification

The 3 months correlation between Valhi and CF Industries is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc 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 Valhi 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 Valhi Inc 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 Valhi i.e., Valhi and CF Industries go up and down completely randomly.

Pair Corralation between Valhi and CF Industries

Considering the 90-day investment horizon Valhi Inc is expected to generate 2.56 times more return on investment than CF Industries. However, Valhi is 2.56 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 0.04 per unit of risk. If you would invest  1,307  in Valhi Inc on October 2, 2024 and sell it today you would earn a total of  950.00  from holding Valhi Inc or generate 72.69% return on investment over 90 days.

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

Valhi Inc  vs.  CF Industries Holdings

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc 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 technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 Valhi and CF Industries

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

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.