Correlation Between CF Industries and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both CF Industries and Alcoa Corp 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 CF Industries and Alcoa Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CF Industries Holdings and Alcoa Corp, you can compare the effects of market volatilities on CF Industries and Alcoa Corp 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 CF Industries with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and Alcoa Corp.
Diversification Opportunities for CF Industries and Alcoa Corp
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between CF Industries and Alcoa is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and CF Industries 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 CF Industries Holdings are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of CF Industries i.e., CF Industries and Alcoa Corp go up and down completely randomly.
Pair Corralation between CF Industries and Alcoa Corp
Allowing for the 90-day total investment horizon CF Industries is expected to generate 5.31 times less return on investment than Alcoa Corp. But when comparing it to its historical volatility, CF Industries Holdings is 1.87 times less risky than Alcoa Corp. It trades about 0.04 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,050 in Alcoa Corp on January 26, 2024 and sell it today you would earn a total of 558.00 from holding Alcoa Corp or generate 18.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CF Industries Holdings vs. Alcoa Corp
Performance |
| Timeline |
| CF Industries Holdings |
| Alcoa Corp |
CF Industries and Alcoa Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CF Industries and Alcoa Corp
The main advantage of trading using opposite CF Industries and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.| CF Industries vs. Nutrien | CF Industries vs. Corteva | CF Industries vs. American Vanguard | CF Industries vs. CVR Partners LP |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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