Correlation Between Fairfax Fin and North Arrow

Can any of the company-specific risk be diversified away by investing in both Fairfax Fin and North Arrow 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 North Arrow 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 North Arrow Minerals, you can compare the effects of market volatilities on Fairfax Fin and North Arrow 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 North Arrow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Fin and North Arrow.

Diversification Opportunities for Fairfax Fin and North Arrow

-0.62

Correlation Coefficient

Fairfax Fin  North Arrow

Excellent diversification

The 3 months correlation between Fairfax and North is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and North Arrow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Arrow Minerals 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 North Arrow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Arrow Minerals has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and North Arrow go up and down completely randomly.

Pair Corralation between Fairfax Fin and North Arrow

Assuming the 90 days trading horizon Fairfax Fin is expected to generate 2.48 times less return on investment than North Arrow. But when comparing it to its historical volatility, Fairfax Fin Hld is 13.46 times less risky than North Arrow. It trades about 0.24 of its potential returns per unit of risk. North Arrow Minerals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in North Arrow Minerals on September 3, 2024 and sell it today you would lose (2.00) from holding North Arrow Minerals or give up 10.0% of portfolio value over 90 days.

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

Fairfax Fin Hld  vs.  North Arrow Minerals

Fairfax Fin Hld

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Fin Hld are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

North Arrow Minerals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North Arrow Minerals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, North Arrow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Fin and North Arrow

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

The idea behind Fairfax Fin Hld and North Arrow Minerals 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.