Correlation Between CF Industries and International Paper

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

Diversification Opportunities for CF Industries and International Paper

0.62

Correlation Coefficient

CF Industries  International Paper

Poor diversification

The 3 months correlation between CF Industries and International is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 International Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Paper has no effect on the direction of CF Industries i.e., CF Industries and International Paper go up and down completely randomly.

Pair Corralation between CF Industries and International Paper

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 7.83 times more return on investment than International Paper. However, CF Industries is 7.83 times more volatile than International Paper. It trades about 0.15 of its potential returns per unit of risk. International Paper is currently generating about 0.15 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 Together
Strength	Significant
Accuracy	71.88%
Values	Daily Returns

CF Industries Holdings  vs.  International Paper

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.

International Paper

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days International Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, International Paper is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CF Industries and International Paper

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

The idea behind CF Industries Holdings and International Paper 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..