Correlation Between Bank of America and CF Industries
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and CF Industries Holdings, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and CF Industries.
Diversification Opportunities for Bank of America and CF Industries
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and CF Industries is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America 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 Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and CF Industries go up and down completely randomly.
Pair Corralation between Bank of America and CF Industries
Assuming the 90 days trading horizon Bank of America is expected to generate 5.7 times less return on investment than CF Industries. But when comparing it to its historical volatility, Bank of America is 2.34 times less risky than CF Industries. It trades about 0.11 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 8,175 in CF Industries Holdings on September 1, 2024 and sell it today you would earn a total of 791.00 from holding CF Industries Holdings or generate 9.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. CF Industries Holdings
Performance |
| Timeline |
| Bank of America |
| CF Industries Holdings |
Bank of America and CF Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and CF Industries
The main advantage of trading using opposite Bank of America and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Bank of America | Bank of America vs. Bank of America | Bank of America vs. China Construction Bank | Bank of America vs. Bank of America |
| CF Industries vs. Nutrien | CF Industries vs. Intrepid Potash | CF Industries vs. Corteva | CF Industries vs. ICL Israel Chemicals |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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