Correlation Between CF Industries and FMC
Can any of the company-specific risk be diversified away by investing in both CF Industries and FMC 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 FMC 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 FMC Corporation, you can compare the effects of market volatilities on CF Industries and FMC 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 FMC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and FMC.
Diversification Opportunities for CF Industries and FMC
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between CF Industries and FMC is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and FMC Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FMC Corporation 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 FMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FMC Corporation has no effect on the direction of CF Industries i.e., CF Industries and FMC go up and down completely randomly.
Pair Corralation between CF Industries and FMC
Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.74 times more return on investment than FMC. However, CF Industries Holdings is 1.35 times less risky than FMC. It trades about 0.08 of its potential returns per unit of risk. FMC Corporation is currently generating about -0.01 per unit of risk. If you would invest 7,777 in CF Industries Holdings on August 24, 2024 and sell it today you would earn a total of 1,287 from holding CF Industries Holdings or generate 16.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CF Industries Holdings vs. FMC Corp.
Performance |
| Timeline |
| CF Industries Holdings |
| FMC Corporation |
CF Industries and FMC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CF Industries and FMC
The main advantage of trading using opposite CF Industries and FMC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, FMC 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 FMC will offset losses from the drop in FMC's long position.| 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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