Correlation Between CF Industries and Entergy Louisiana

Can any of the company-specific risk be diversified away by investing in both CF Industries and Entergy Louisiana 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 Entergy Louisiana 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 Entergy Louisiana LLC, you can compare the effects of market volatilities on CF Industries and Entergy Louisiana 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 Entergy Louisiana. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Industries and Entergy Louisiana.

Diversification Opportunities for CF Industries and Entergy Louisiana

-0.38

Correlation Coefficient

CF Industries  Entergy Louisiana

Very good diversification

The 3 months correlation between CF Industries and Entergy is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Entergy Louisiana LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Louisiana LLC 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 Entergy Louisiana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Louisiana LLC has no effect on the direction of CF Industries i.e., CF Industries and Entergy Louisiana go up and down completely randomly.

Pair Corralation between CF Industries and Entergy Louisiana

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 2.84 times more return on investment than Entergy Louisiana. However, CF Industries is 2.84 times more volatile than Entergy Louisiana LLC. It trades about 0.15 of its potential returns per unit of risk. Entergy Louisiana LLC is currently generating about -0.11 per unit of risk. If you would invest  8,458  in CF Industries Holdings on September 12, 2024 and sell it today you would earn a total of  426.00  from holding CF Industries Holdings or generate 5.04% 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.  Entergy Louisiana LLC

CF Industries Holdings

Risk-Adjusted Performance

11 of 100

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.

Entergy Louisiana LLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entergy Louisiana LLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Entergy Louisiana is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CF Industries and Entergy Louisiana

The main advantage of trading using opposite CF Industries and Entergy Louisiana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Entergy Louisiana 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 Entergy Louisiana will offset losses from the drop in Entergy Louisiana's long position.

The idea behind CF Industries Holdings and Entergy Louisiana LLC 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.