Correlation Between Fairfax Financial and Champion Iron

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

Diversification Opportunities for Fairfax Financial and Champion Iron

0.08

Correlation Coefficient

Fairfax Financial  Champion Iron

Significant diversification

The 3 months correlation between Fairfax and Champion is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Champion Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron 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 Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Champion Iron go up and down completely randomly.

Pair Corralation between Fairfax Financial and Champion Iron

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.5 times more return on investment than Champion Iron. However, Fairfax Financial Holdings is 1.99 times less risky than Champion Iron. It trades about 0.08 of its potential returns per unit of risk. Champion Iron is currently generating about -0.05 per unit of risk. If you would invest  198,535  in Fairfax Financial Holdings on December 2, 2024 and sell it today you would earn a total of  9,468  from holding Fairfax Financial Holdings or generate 4.77% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Champion Iron

Fairfax Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Champion Iron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Champion Iron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Fairfax Financial and Champion Iron

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

The idea behind Fairfax Financial Holdings and Champion Iron 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.