Correlation Between CF Industries and DL Industries

Can any of the company-specific risk be diversified away by investing in both CF Industries and DL 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 CF Industries and DL Industries 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 DL Industries ADR, you can compare the effects of market volatilities on CF Industries and DL 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 CF Industries with a short position of DL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and DL Industries.

Diversification Opportunities for CF Industries and DL Industries

-0.15

Correlation Coefficient

CF Industries  DL Industries

Good diversification

The 3 months correlation between CF Industries and DLNDY is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and DL Industries ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DL Industries ADR 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 DL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DL Industries ADR has no effect on the direction of CF Industries i.e., CF Industries and DL Industries go up and down completely randomly.

Pair Corralation between CF Industries and DL Industries

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to under-perform the DL Industries. But the stock apears to be less risky and, when comparing its historical volatility, CF Industries Holdings is 1.23 times less risky than DL Industries. The stock trades about -0.12 of its potential returns per unit of risk. The DL Industries ADR is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  262.00  in DL Industries ADR on January 25, 2024 and sell it today you would lose (4.00) from holding DL Industries ADR or give up 1.53% of portfolio value over 90 days.

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

CF Industries Holdings  vs.  DL Industries ADR

CF Industries Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

DL Industries ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DL Industries ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CF Industries and DL Industries

The main advantage of trading using opposite CF Industries and DL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, DL 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 DL Industries will offset losses from the drop in DL Industries' long position.

The idea behind CF Industries Holdings and DL Industries ADR 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.