Correlation Between Fairfax Financial and Dividend Growth

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

Diversification Opportunities for Fairfax Financial and Dividend Growth

0.41

Correlation Coefficient

Fairfax Financial  Dividend Growth

Very weak diversification

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

Pair Corralation between Fairfax Financial and Dividend Growth

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 2.79 times less return on investment than Dividend Growth. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.6 times less risky than Dividend Growth. It trades about 0.16 of its potential returns per unit of risk. Dividend Growth Split is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,039  in Dividend Growth Split on December 2, 2024 and sell it today you would earn a total of  66.00  from holding Dividend Growth Split or generate 6.35% 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.  Dividend Growth Split

Fairfax Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 12 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Dividend Growth Split

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dividend Growth Split are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dividend Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fairfax Financial and Dividend Growth

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

The idea behind Fairfax Financial Holdings and Dividend Growth Split 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.