Correlation Between AngloGold Ashanti and CF Industries

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

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

Diversification Opportunities for AngloGold Ashanti and CF Industries

0.7

Correlation Coefficient

AngloGold Ashanti  CF Industries

Poor diversification

The 3 months correlation between AngloGold and CF Industries is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding AngloGold Ashanti plc 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 AngloGold Ashanti 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 AngloGold Ashanti plc 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 AngloGold Ashanti i.e., AngloGold Ashanti and CF Industries go up and down completely randomly.

Pair Corralation between AngloGold Ashanti and CF Industries

Allowing for the 90-day total investment horizon AngloGold Ashanti plc is expected to generate 0.96 times more return on investment than CF Industries. However, AngloGold Ashanti plc is 1.04 times less risky than CF Industries. It trades about 0.27 of its potential returns per unit of risk. CF Industries Holdings is currently generating about -0.18 per unit of risk. If you would invest  2,127  in AngloGold Ashanti plc on January 20, 2024 and sell it today you would earn a total of  244.00  from holding AngloGold Ashanti plc or generate 11.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

AngloGold Ashanti plc  vs.  CF Industries Holdings

AngloGold Ashanti plc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AngloGold Ashanti plc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, AngloGold Ashanti unveiled solid returns over the last few months and may actually be approaching a breakup point.

CF Industries Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CF Industries may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with AngloGold Ashanti and CF Industries

The main advantage of trading using opposite AngloGold Ashanti and CF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AngloGold Ashanti 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 AngloGold Ashanti plc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.