Correlation Between AmTrust Financial and Fairfax Financial

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

By analyzing existing cross correlation between AmTrust Financial Services and Fairfax Financial Holdings, you can compare the effects of market volatilities on AmTrust Financial and Fairfax Financial 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 AmTrust Financial with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of AmTrust Financial and Fairfax Financial.

Diversification Opportunities for AmTrust Financial and Fairfax Financial

0.13

Correlation Coefficient

AmTrust Financial  Fairfax Financial

Average diversification

The 3 months correlation between AmTrust and Fairfax is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding AmTrust Financial Services and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and AmTrust Financial 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 AmTrust Financial Services are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of AmTrust Financial i.e., AmTrust Financial and Fairfax Financial go up and down completely randomly.

Pair Corralation between AmTrust Financial and Fairfax Financial

Assuming the 90 days horizon AmTrust Financial Services is expected to generate 3.64 times more return on investment than Fairfax Financial. However, AmTrust Financial is 3.64 times more volatile than Fairfax Financial Holdings. It trades about 0.01 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.03 per unit of risk. If you would invest  1,305  in AmTrust Financial Services on September 5, 2024 and sell it today you would earn a total of  5.00  from holding AmTrust Financial Services or generate 0.38% return on investment over 90 days.

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

AmTrust Financial Services  vs.  Fairfax Financial Holdings

AmTrust Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AmTrust Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, AmTrust Financial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Fairfax Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Fairfax Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AmTrust Financial and Fairfax Financial

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

The idea behind AmTrust Financial Services and Fairfax Financial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.