Correlation Between NYSE Composite and CF Industries

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

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

Diversification Opportunities for NYSE Composite and CF Industries

0.54

Correlation Coefficient

NYSE Composite  CF Industries

Very weak diversification

The 3 months correlation between NYSE and CF Industries is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and CF Industries go up and down completely randomly.

Pair Corralation between NYSE Composite and CF Industries

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the CF Industries. But the index apears to be less risky and, when comparing its historical volatility, NYSE Composite is 2.32 times less risky than CF Industries. The index trades about -0.3 of its potential returns per unit of risk. The CF Industries Holdings is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  8,739  in CF Industries Holdings on September 25, 2024 and sell it today you would lose (199.00) from holding CF Industries Holdings or give up 2.28% of portfolio value over 90 days.

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

NYSE Composite  vs.  CF Industries Holdings

Pair Trading with NYSE Composite and CF Industries

The main advantage of trading using opposite NYSE Composite and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.