Correlation Between Allstate and Fairfax Financial

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

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

Diversification Opportunities for Allstate and Fairfax Financial

-0.23

Correlation Coefficient

Allstate  Fairfax Financial

Very good diversification

The 3 months correlation between Allstate and Fairfax is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Allstate 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 The Allstate 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 Allstate i.e., Allstate and Fairfax Financial go up and down completely randomly.

Pair Corralation between Allstate and Fairfax Financial

Assuming the 90 days horizon The Allstate is expected to generate 1.74 times more return on investment than Fairfax Financial. However, Allstate is 1.74 times more volatile than Fairfax Financial Holdings. It trades about 0.05 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.0 per unit of risk. If you would invest  18,343  in The Allstate on December 30, 2024 and sell it today you would earn a total of  917.00  from holding The Allstate or generate 5.0% return on investment over 90 days.

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

The Allstate  vs.  Fairfax Financial Holdings

Allstate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Allstate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Fairfax Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fairfax Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Fairfax Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Allstate and Fairfax Financial

The main advantage of trading using opposite Allstate and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate 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 The Allstate 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.