Correlation Between Danakali and CF Industries

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Can any of the company-specific risk be diversified away by investing in both Danakali 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 Danakali and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Danakali Limited and CF Industries Holdings, you can compare the effects of market volatilities on Danakali 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 Danakali with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danakali and CF Industries.

Diversification Opportunities for Danakali and CF Industries

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Danakali and CF Industries is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Danakali Limited 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 Danakali 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 Danakali Limited 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 Danakali i.e., Danakali and CF Industries go up and down completely randomly.

Pair Corralation between Danakali and CF Industries

If you would invest  7,627  in CF Industries Holdings on September 12, 2024 and sell it today you would earn a total of  1,257  from holding CF Industries Holdings or generate 16.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy0.28%
ValuesDaily Returns

Danakali Limited  vs.  CF Industries Holdings

 Performance 
       Timeline  
Danakali Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Danakali Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Danakali is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
CF Industries Holdings 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Danakali and CF Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Danakali and CF Industries

The main advantage of trading using opposite Danakali and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danakali 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.
The idea behind Danakali Limited and CF Industries Holdings 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 Stocks Directory module to find actively traded stocks across global markets.

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