Correlation Between ArcelorMittal and CF Industries

Can any of the company-specific risk be diversified away by investing in both ArcelorMittal and CF Industries 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 ArcelorMittal and CF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ArcelorMittal SA ADR and CF Industries Holdings, you can compare the effects of market volatilities on ArcelorMittal and CF Industries 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 ArcelorMittal with a short position of CF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of ArcelorMittal and CF Industries.

Diversification Opportunities for ArcelorMittal and CF Industries

0.61

Correlation Coefficient

ArcelorMittal  CF Industries

Poor diversification

The 3 months correlation between ArcelorMittal and CF Industries is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA ADR and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings and ArcelorMittal 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 ArcelorMittal SA ADR are associated (or correlated) with CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of ArcelorMittal i.e., ArcelorMittal and CF Industries go up and down completely randomly.

Pair Corralation between ArcelorMittal and CF Industries

Allowing for the 90-day total investment horizon ArcelorMittal SA ADR is expected to under-perform the CF Industries. In addition to that, ArcelorMittal is 1.36 times more volatile than CF Industries Holdings. It trades about -0.02 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.05 per unit of volatility. If you would invest  8,265  in CF Industries Holdings on September 19, 2024 and sell it today you would earn a total of  390.00  from holding CF Industries Holdings or generate 4.72% return on investment over 90 days.

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

ArcelorMittal SA ADR  vs.  CF Industries Holdings

ArcelorMittal SA ADR

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ArcelorMittal SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ArcelorMittal is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

CF Industries Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 4 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ArcelorMittal and CF Industries

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

The idea behind ArcelorMittal SA ADR and CF Industries Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.