Correlation Between Fairfax Financial and NVIDIA CDR

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

Diversification Opportunities for Fairfax Financial and NVIDIA CDR

-0.34

Correlation Coefficient

Fairfax Financial  NVIDIA CDR

Very good diversification

The 3 months correlation between Fairfax and NVIDIA is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and NVIDIA CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA CDR 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 NVIDIA CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA CDR has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and NVIDIA CDR go up and down completely randomly.

Pair Corralation between Fairfax Financial and NVIDIA CDR

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.37 times more return on investment than NVIDIA CDR. However, Fairfax Financial Holdings is 2.71 times less risky than NVIDIA CDR. It trades about 0.21 of its potential returns per unit of risk. NVIDIA CDR is currently generating about -0.02 per unit of risk. If you would invest  2,196  in Fairfax Financial Holdings on October 22, 2024 and sell it today you would earn a total of  254.00  from holding Fairfax Financial Holdings or generate 11.57% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  NVIDIA CDR

Fairfax Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NVIDIA CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NVIDIA CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, NVIDIA CDR is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Fairfax Financial and NVIDIA CDR

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

The idea behind Fairfax Financial Holdings and NVIDIA CDR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.