Correlation Between Quanex Building and CF Industries

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

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

Diversification Opportunities for Quanex Building and CF Industries

0.78

Correlation Coefficient

Quanex Building  CF Industries

Poor diversification

The 3 months correlation between Quanex and CF Industries is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Quanex Building Products 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 Quanex Building 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 Quanex Building Products 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 Quanex Building i.e., Quanex Building and CF Industries go up and down completely randomly.

Pair Corralation between Quanex Building and CF Industries

Allowing for the 90-day total investment horizon Quanex Building Products is expected to under-perform the CF Industries. In addition to that, Quanex Building is 1.08 times more volatile than CF Industries Holdings. It trades about -0.01 of its total potential returns per unit of risk. CF Industries Holdings is currently generating about 0.01 per unit of volatility. If you would invest  7,978  in CF Industries Holdings on January 28, 2024 and sell it today you would earn a total of  19.00  from holding CF Industries Holdings or generate 0.24% return on investment over 90 days.

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

Quanex Building Products  vs.  CF Industries Holdings

Quanex Building Products

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quanex Building Products are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Quanex Building may actually be approaching a critical reversion point that can send shares even higher in May 2024.

CF Industries Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 3 (%) 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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Quanex Building and CF Industries

The main advantage of trading using opposite Quanex Building and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quanex Building 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 Quanex Building Products 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.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.