Correlation Between CF Industries and Universal Music

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

Diversification Opportunities for CF Industries and Universal Music

-0.42

Correlation Coefficient

CF Industries  Universal Music

Very good diversification

The 3 months correlation between CF Industries and Universal is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group 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 Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of CF Industries i.e., CF Industries and Universal Music go up and down completely randomly.

Pair Corralation between CF Industries and Universal Music

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 0.7 times more return on investment than Universal Music. However, CF Industries Holdings is 1.42 times less risky than Universal Music. It trades about 0.03 of its potential returns per unit of risk. Universal Music Group is currently generating about 0.02 per unit of risk. If you would invest  8,278  in CF Industries Holdings on September 22, 2024 and sell it today you would earn a total of  220.00  from holding CF Industries Holdings or generate 2.66% return on investment over 90 days.

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

CF Industries Holdings  vs.  Universal Music Group

CF Industries Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Universal Music Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Universal Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CF Industries and Universal Music

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

The idea behind CF Industries Holdings and Universal Music Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.