Correlation Between Fairfax Financial and NTG Clarity

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

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

Diversification Opportunities for Fairfax Financial and NTG Clarity

0.65

Correlation Coefficient

Fairfax Financial  NTG Clarity

Poor diversification

The 3 months correlation between Fairfax and NTG is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and NTG Clarity Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NTG Clarity Networks and Fairfax Financial 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 Financial Holdings are associated (or correlated) with NTG Clarity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NTG Clarity Networks has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and NTG Clarity go up and down completely randomly.

Pair Corralation between Fairfax Financial and NTG Clarity

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 8.6 times less return on investment than NTG Clarity. But when comparing it to its historical volatility, Fairfax Financial Holdings is 8.24 times less risky than NTG Clarity. It trades about 0.09 of its potential returns per unit of risk. NTG Clarity Networks is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  15.00  in NTG Clarity Networks on September 26, 2024 and sell it today you would earn a total of  142.00  from holding NTG Clarity Networks or generate 946.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Fairfax Financial Holdings  vs.  NTG Clarity Networks

Fairfax Financial

Risk-Adjusted Performance

17 of 100

Solid

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

NTG Clarity Networks

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NTG Clarity Networks are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, NTG Clarity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and NTG Clarity

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

The idea behind Fairfax Financial Holdings and NTG Clarity Networks 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.