Correlation Between Fairfax Fin and CVS HEALTH

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

By analyzing existing cross correlation between Fairfax Fin Hld and CVS HEALTH CDR, you can compare the effects of market volatilities on Fairfax Fin and CVS HEALTH 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 Fairfax Fin with a short position of CVS HEALTH. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Fin and CVS HEALTH.

Diversification Opportunities for Fairfax Fin and CVS HEALTH

-0.3

Correlation Coefficient

Fairfax Fin  CVS HEALTH

Very good diversification

The 3 months correlation between Fairfax and CVS is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and CVS HEALTH CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH CDR and Fairfax Fin 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 Fairfax Fin Hld are associated (or correlated) with CVS HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS HEALTH CDR has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and CVS HEALTH go up and down completely randomly.

Pair Corralation between Fairfax Fin and CVS HEALTH

Assuming the 90 days trading horizon Fairfax Fin Hld is expected to generate 0.37 times more return on investment than CVS HEALTH. However, Fairfax Fin Hld is 2.68 times less risky than CVS HEALTH. It trades about 0.2 of its potential returns per unit of risk. CVS HEALTH CDR is currently generating about -0.18 per unit of risk. If you would invest  2,330  in Fairfax Fin Hld on October 9, 2024 and sell it today you would earn a total of  169.00  from holding Fairfax Fin Hld or generate 7.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.5%
Values	Daily Returns

Fairfax Fin Hld  vs.  CVS HEALTH CDR

Fairfax Fin Hld

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Fairfax Fin Hld has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat unfluctuating technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Fairfax Fin and CVS HEALTH

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

The idea behind Fairfax Fin Hld and CVS HEALTH CDR 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.