Correlation Between CF Industries and Lincoln Electric
Can any of the company-specific risk be diversified away by investing in both CF Industries and Lincoln Electric 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 Lincoln Electric 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 Lincoln Electric Holdings, you can compare the effects of market volatilities on CF Industries and Lincoln Electric 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 Lincoln Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and Lincoln Electric.
Diversification Opportunities for CF Industries and Lincoln Electric
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CF Industries and Lincoln is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Lincoln Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Electric Holdings 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 Lincoln Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Electric Holdings has no effect on the direction of CF Industries i.e., CF Industries and Lincoln Electric go up and down completely randomly.
Pair Corralation between CF Industries and Lincoln Electric
Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 1.1 times more return on investment than Lincoln Electric. However, CF Industries is 1.1 times more volatile than Lincoln Electric Holdings. It trades about 0.21 of its potential returns per unit of risk. Lincoln Electric Holdings is currently generating about -0.08 per unit of risk. If you would invest 8,373 in CF Industries Holdings on September 13, 2024 and sell it today you would earn a total of 609.00 from holding CF Industries Holdings or generate 7.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CF Industries Holdings vs. Lincoln Electric Holdings
Performance |
| Timeline |
| CF Industries Holdings |
| Lincoln Electric Holdings |
CF Industries and Lincoln Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CF Industries and Lincoln Electric
The main advantage of trading using opposite CF Industries and Lincoln Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Lincoln Electric 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 Lincoln Electric will offset losses from the drop in Lincoln Electric's long position.| CF Industries vs. Intrepid Potash | CF Industries vs. Corteva | CF Industries vs. ICL Israel Chemicals | CF Industries vs. The Mosaic |
| Lincoln Electric vs. Kennametal | Lincoln Electric vs. Toro Co | Lincoln Electric vs. Snap On | Lincoln Electric vs. RBC Bearings Incorporated |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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