Correlation Between European Equity and Fairfax India

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

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

Diversification Opportunities for European Equity and Fairfax India

0.46

Correlation Coefficient

European Equity  Fairfax India

Very weak diversification

The 3 months correlation between European and Fairfax is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding European Equity Closed and Fairfax India Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax India Holdings and European Equity 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 European Equity Closed are associated (or correlated) with Fairfax India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax India Holdings has no effect on the direction of European Equity i.e., European Equity and Fairfax India go up and down completely randomly.

Pair Corralation between European Equity and Fairfax India

Considering the 90-day investment horizon European Equity Closed is expected to generate 0.37 times more return on investment than Fairfax India. However, European Equity Closed is 2.7 times less risky than Fairfax India. It trades about 0.23 of its potential returns per unit of risk. Fairfax India Holdings is currently generating about 0.08 per unit of risk. If you would invest  815.00  in European Equity Closed on December 27, 2024 and sell it today you would earn a total of  103.00  from holding European Equity Closed or generate 12.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

European Equity Closed  vs.  Fairfax India Holdings

European Equity Closed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Equity Closed are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Equity sustained solid returns over the last few months and may actually be approaching a breakup point.

Fairfax India Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax India Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, Fairfax India may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with European Equity and Fairfax India

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

The idea behind European Equity Closed and Fairfax India 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.