Correlation Between Fairfax Financial and Sparx Technology

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

Diversification Opportunities for Fairfax Financial and Sparx Technology

0.82

Correlation Coefficient

Fairfax Financial  Sparx Technology

Very poor diversification

The 3 months correlation between Fairfax and Sparx is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Sparx Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparx Technology 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 Sparx Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparx Technology has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Sparx Technology go up and down completely randomly.

Pair Corralation between Fairfax Financial and Sparx Technology

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to under-perform the Sparx Technology. But the preferred stock apears to be less risky and, when comparing its historical volatility, Fairfax Financial Holdings is 3.47 times less risky than Sparx Technology. The preferred stock trades about -0.04 of its potential returns per unit of risk. The Sparx Technology is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,632  in Sparx Technology on September 24, 2024 and sell it today you would earn a total of  110.00  from holding Sparx Technology or generate 4.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Sparx Technology

Fairfax Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sparx Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparx Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Sparx Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Sparx Technology

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

The idea behind Fairfax Financial Holdings and Sparx Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..