Correlation Between Fairfax Fin and Solaris Resources

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

Diversification Opportunities for Fairfax Fin and Solaris Resources

0.75

Correlation Coefficient

Fairfax Fin  Solaris Resources

Poor diversification

The 3 months correlation between Fairfax and Solaris is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and Solaris Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solaris Resources 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 Solaris Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solaris Resources has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and Solaris Resources go up and down completely randomly.

Pair Corralation between Fairfax Fin and Solaris Resources

Assuming the 90 days trading horizon Fairfax Fin is expected to generate 3.27 times less return on investment than Solaris Resources. But when comparing it to its historical volatility, Fairfax Fin Hld is 4.96 times less risky than Solaris Resources. It trades about 0.24 of its potential returns per unit of risk. Solaris Resources is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  289.00  in Solaris Resources on September 4, 2024 and sell it today you would earn a total of  143.00  from holding Solaris Resources or generate 49.48% return on investment over 90 days.

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

Fairfax Fin Hld  vs.  Solaris Resources

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 unfluctuating technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

Solaris Resources

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solaris Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Solaris Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Fin and Solaris Resources

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

The idea behind Fairfax Fin Hld and Solaris Resources 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 Anywhere module to track or share privately all of your investments from the convenience of any device.