Correlation Between Fairfax Financial and Hampton Financial

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

Diversification Opportunities for Fairfax Financial and Hampton Financial

-0.61

Correlation Coefficient

Fairfax Financial  Hampton Financial

Excellent diversification

The 3 months correlation between Fairfax and Hampton is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Hampton Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hampton Financial Corp 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 Hampton Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hampton Financial Corp has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Hampton Financial go up and down completely randomly.

Pair Corralation between Fairfax Financial and Hampton Financial

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to under-perform the Hampton Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, Fairfax Financial Holdings is 4.3 times less risky than Hampton Financial. The preferred stock trades about -0.02 of its potential returns per unit of risk. The Hampton Financial Corp is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  40.00  in Hampton Financial Corp on September 20, 2024 and sell it today you would earn a total of  5.00  from holding Hampton Financial Corp or generate 12.5% 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.  Hampton Financial Corp

Fairfax Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hampton Financial Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hampton Financial Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hampton Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Fairfax Financial and Hampton Financial

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

The idea behind Fairfax Financial Holdings and Hampton Financial Corp 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.