Correlation Between CF Industries and Zhihu
Can any of the company-specific risk be diversified away by investing in both CF Industries and Zhihu 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 Zhihu 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 Zhihu Inc ADR, you can compare the effects of market volatilities on CF Industries and Zhihu 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 Zhihu. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and Zhihu.
Diversification Opportunities for CF Industries and Zhihu
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CF Industries and Zhihu is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Zhihu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhihu Inc 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 Zhihu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhihu Inc ADR has no effect on the direction of CF Industries i.e., CF Industries and Zhihu go up and down completely randomly.
Pair Corralation between CF Industries and Zhihu
Allowing for the 90-day total investment horizon CF Industries is expected to generate 1.22 times less return on investment than Zhihu. But when comparing it to its historical volatility, CF Industries Holdings is 2.98 times less risky than Zhihu. It trades about 0.15 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 336.00 in Zhihu Inc ADR on September 4, 2024 and sell it today you would earn a total of 40.00 from holding Zhihu Inc ADR or generate 11.9% 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. Zhihu Inc ADR
Performance |
| Timeline |
| CF Industries Holdings |
| Zhihu Inc ADR |
CF Industries and Zhihu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CF Industries and Zhihu
The main advantage of trading using opposite CF Industries and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Zhihu 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 Zhihu will offset losses from the drop in Zhihu'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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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