Correlation Between Fairfax Financial and Western Investment

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

Diversification Opportunities for Fairfax Financial and Western Investment

0.41

Correlation Coefficient

Fairfax Financial  Western Investment

Very weak diversification

The 3 months correlation between Fairfax and Western is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment 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 Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Western Investment go up and down completely randomly.

Pair Corralation between Fairfax Financial and Western Investment

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 450.15 times less return on investment than Western Investment. But when comparing it to its historical volatility, Fairfax Financial Holdings is 6.51 times less risky than Western Investment. It trades about 0.0 of its potential returns per unit of risk. Western Investment is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Western Investment on September 23, 2024 and sell it today you would earn a total of  11.00  from holding Western Investment or generate 26.19% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Western Investment

Fairfax Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 8 (%) 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.

Western Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Western Investment

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

The idea behind Fairfax Financial Holdings and Western Investment 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.