Correlation Between CF Industries and Intrepid Potash

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

Diversification Opportunities for CF Industries and Intrepid Potash

0.41

Correlation Coefficient

CF Industries  Intrepid Potash

Very weak diversification

The 3 months correlation between CF Industries and Intrepid is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Intrepid Potash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intrepid Potash 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 Intrepid Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intrepid Potash has no effect on the direction of CF Industries i.e., CF Industries and Intrepid Potash go up and down completely randomly.

Pair Corralation between CF Industries and Intrepid Potash

Allowing for the 90-day total investment horizon CF Industries is expected to generate 1.24 times less return on investment than Intrepid Potash. But when comparing it to its historical volatility, CF Industries Holdings is 1.61 times less risky than Intrepid Potash. It trades about 0.14 of its potential returns per unit of risk. Intrepid Potash is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,355  in Intrepid Potash on August 31, 2024 and sell it today you would earn a total of  353.00  from holding Intrepid Potash or generate 14.99% return on investment over 90 days.

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

CF Industries Holdings  vs.  Intrepid Potash

CF Industries Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 10 (%) 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.

Intrepid Potash

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Intrepid Potash are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Intrepid Potash demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Industries and Intrepid Potash

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

The idea behind CF Industries Holdings and Intrepid Potash 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.