Correlation Between Fairfax Financial and Berkshire Hathaway

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

Diversification Opportunities for Fairfax Financial and Berkshire Hathaway

0.71

Correlation Coefficient

Fairfax Financial  Berkshire Hathaway

Poor diversification

The 3 months correlation between Fairfax and Berkshire is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Berkshire Hathaway CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway CDR has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Fairfax Financial and Berkshire Hathaway

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.32 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.52 times less risky than Berkshire Hathaway. It trades about 0.13 of its potential returns per unit of risk. Berkshire Hathaway CDR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,752  in Berkshire Hathaway CDR on September 13, 2024 and sell it today you would earn a total of  731.00  from holding Berkshire Hathaway CDR or generate 26.56% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Berkshire Hathaway CDR

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 strong technical indicators, Fairfax Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Berkshire Hathaway CDR

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fairfax Financial and Berkshire Hathaway

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

The idea behind Fairfax Financial Holdings and Berkshire Hathaway 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.