Correlation Between Fairfax Financial and Capella Minerals

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

Diversification Opportunities for Fairfax Financial and Capella Minerals

-0.57

Correlation Coefficient

Fairfax Financial  Capella Minerals

Excellent diversification

The 3 months correlation between Fairfax and Capella is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Capella Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capella Minerals 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 Capella Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capella Minerals has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Capella Minerals go up and down completely randomly.

Pair Corralation between Fairfax Financial and Capella Minerals

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 19.5 times less return on investment than Capella Minerals. But when comparing it to its historical volatility, Fairfax Financial Holdings is 36.37 times less risky than Capella Minerals. It trades about 0.22 of its potential returns per unit of risk. Capella Minerals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Capella Minerals on October 14, 2024 and sell it today you would lose (2.00) from holding Capella Minerals or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Capella Minerals

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

Capella Minerals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capella Minerals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal forward indicators, Capella Minerals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Capella Minerals

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

The idea behind Fairfax Financial Holdings and Capella 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..