Correlation Between Timken and CF Industries
Can any of the company-specific risk be diversified away by investing in both Timken 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 Timken and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Timken Company and CF Industries Holdings, you can compare the effects of market volatilities on Timken 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 Timken with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Timken and CF Industries.
Diversification Opportunities for Timken and CF Industries
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Timken and CF Industries is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company 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 Timken 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 Timken Company 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 Timken i.e., Timken and CF Industries go up and down completely randomly.
Pair Corralation between Timken and CF Industries
Considering the 90-day investment horizon Timken Company is expected to generate 1.03 times more return on investment than CF Industries. However, Timken is 1.03 times more volatile than CF Industries Holdings. It trades about 0.02 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.01 per unit of risk. If you would invest 6,833 in Timken Company on September 13, 2024 and sell it today you would earn a total of 897.00 from holding Timken Company or generate 13.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Timken Company vs. CF Industries Holdings
Performance |
| Timeline |
| Timken Company |
| CF Industries Holdings |
Timken and CF Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Timken and CF Industries
The main advantage of trading using opposite Timken and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken 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 Timken Company 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.| CF Industries vs. Intrepid Potash | CF Industries vs. Corteva | CF Industries vs. ICL Israel Chemicals | CF Industries vs. The Mosaic |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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