Correlation Between CF Industries and Aspen Insurance

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

Diversification Opportunities for CF Industries and Aspen Insurance

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between CF Industries and Aspen is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding CF Industries Holdings and Aspen Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Insurance Holdings 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 Aspen Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Insurance Holdings has no effect on the direction of CF Industries i.e., CF Industries and Aspen Insurance go up and down completely randomly.

Pair Corralation between CF Industries and Aspen Insurance

Allowing for the 90-day total investment horizon CF Industries Holdings is expected to generate 1.24 times more return on investment than Aspen Insurance. However, CF Industries is 1.24 times more volatile than Aspen Insurance Holdings. It trades about 0.13 of its potential returns per unit of risk. Aspen Insurance Holdings is currently generating about -0.02 per unit of risk. If you would invest  7,927  in CF Industries Holdings on September 15, 2024 and sell it today you would earn a total of  1,023  from holding CF Industries Holdings or generate 12.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CF Industries Holdings  vs.  Aspen Insurance Holdings

 Performance 
       Timeline  
CF Industries Holdings 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
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.
Aspen Insurance Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aspen Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Aspen Insurance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CF Industries and Aspen Insurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CF Industries and Aspen Insurance

The main advantage of trading using opposite CF Industries and Aspen Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Industries position performs unexpectedly, Aspen Insurance 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 Aspen Insurance will offset losses from the drop in Aspen Insurance's long position.
The idea behind CF Industries Holdings and Aspen Insurance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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