Correlation Between CF Industries and Foremost Lithium

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

Diversification Opportunities for CF Industries and Foremost Lithium

-0.68

Correlation Coefficient

CF Industries  Foremost Lithium

Excellent diversification

The 3 months correlation between CF Industries and Foremost is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Foremost Lithium Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foremost Lithium Resource 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 Foremost Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foremost Lithium Resource has no effect on the direction of CF Industries i.e., CF Industries and Foremost Lithium go up and down completely randomly.

Pair Corralation between CF Industries and Foremost Lithium

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.25 times more return on investment than Foremost Lithium. However, CF Industries Holdings is 4.05 times less risky than Foremost Lithium. It trades about 0.15 of its potential returns per unit of risk. Foremost Lithium Resource is currently generating about -0.18 per unit of risk. If you would invest  7,725  in CF Industries Holdings on September 12, 2024 and sell it today you would earn a total of  1,159  from holding CF Industries Holdings or generate 15.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

CF Industries Holdings  vs.  Foremost Lithium Resource

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.

Foremost Lithium Resource

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foremost Lithium Resource has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with CF Industries and Foremost Lithium

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

The idea behind CF Industries Holdings and Foremost Lithium Resource 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.