Correlation Between Fairfax Financial and Data Communications

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

Diversification Opportunities for Fairfax Financial and Data Communications

-0.78

Correlation Coefficient

Fairfax Financial  Data Communications

Pay attention - limited upside

The 3 months correlation between Fairfax and Data is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Data Communications Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Communications 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 Data Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Communications has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Data Communications go up and down completely randomly.

Pair Corralation between Fairfax Financial and Data Communications

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 4.58 times less return on investment than Data Communications. But when comparing it to its historical volatility, Fairfax Financial Holdings is 3.44 times less risky than Data Communications. It trades about 0.16 of its potential returns per unit of risk. Data Communications Management is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  177.00  in Data Communications Management on September 22, 2024 and sell it today you would earn a total of  35.00  from holding Data Communications Management or generate 19.77% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Data Communications Management

Fairfax Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 15 (%) 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.

Data Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fairfax Financial and Data Communications

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

The idea behind Fairfax Financial Holdings and Data Communications Management 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.