Correlation Between Fairfax Financial and Exco Technologies

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

Diversification Opportunities for Fairfax Financial and Exco Technologies

-0.48

Correlation Coefficient

Fairfax Financial  Exco Technologies

Very good diversification

The 3 months correlation between Fairfax and Exco is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Exco Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exco Technologies 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 Exco Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exco Technologies has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Exco Technologies go up and down completely randomly.

Pair Corralation between Fairfax Financial and Exco Technologies

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.86 times more return on investment than Exco Technologies. However, Fairfax Financial Holdings is 1.16 times less risky than Exco Technologies. It trades about 0.05 of its potential returns per unit of risk. Exco Technologies Limited is currently generating about -0.24 per unit of risk. If you would invest  197,103  in Fairfax Financial Holdings on December 30, 2024 and sell it today you would earn a total of  6,570  from holding Fairfax Financial Holdings or generate 3.33% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Exco Technologies Limited

Fairfax Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 3 (%) 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.

Exco Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exco Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Fairfax Financial and Exco Technologies

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

The idea behind Fairfax Financial Holdings and Exco Technologies Limited 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.