Correlation Between 00108WAF7 and 12527GAE3

Can any of the company-specific risk be diversified away by investing in both 00108WAF7 and 12527GAE3 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 00108WAF7 and 12527GAE3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AEP TEX INC and CF INDS INC, you can compare the effects of market volatilities on 00108WAF7 and 12527GAE3 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 00108WAF7 with a short position of 12527GAE3. Check out your portfolio center. Please also check ongoing floating volatility patterns of 00108WAF7 and 12527GAE3.

Diversification Opportunities for 00108WAF7 and 12527GAE3

-0.33

Correlation Coefficient

00108WAF7  12527GAE3

Very good diversification

The 3 months correlation between 00108WAF7 and 12527GAE3 is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding AEP TEX INC and CF INDS INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF INDS INC and 00108WAF7 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 AEP TEX INC are associated (or correlated) with 12527GAE3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF INDS INC has no effect on the direction of 00108WAF7 i.e., 00108WAF7 and 12527GAE3 go up and down completely randomly.

Pair Corralation between 00108WAF7 and 12527GAE3

Assuming the 90 days trading horizon AEP TEX INC is expected to generate 1.36 times more return on investment than 12527GAE3. However, 00108WAF7 is 1.36 times more volatile than CF INDS INC. It trades about 0.03 of its potential returns per unit of risk. CF INDS INC is currently generating about -0.02 per unit of risk. If you would invest  7,181  in AEP TEX INC on December 29, 2024 and sell it today you would earn a total of  135.00  from holding AEP TEX INC or generate 1.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	81.97%
Values	Daily Returns

AEP TEX INC  vs.  CF INDS INC

AEP TEX INC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 00108WAF7 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

CF INDS INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF INDS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 12527GAE3 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with 00108WAF7 and 12527GAE3

The main advantage of trading using opposite 00108WAF7 and 12527GAE3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 00108WAF7 position performs unexpectedly, 12527GAE3 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 12527GAE3 will offset losses from the drop in 12527GAE3's long position.

The idea behind AEP TEX INC and CF INDS INC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.