Correlation Between Fairfax Financial and Admiral Group

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

Diversification Opportunities for Fairfax Financial and Admiral Group

-0.15

Correlation Coefficient

Fairfax Financial  Admiral Group

Good diversification

The 3 months correlation between Fairfax and Admiral is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Admiral Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Admiral Group plc 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 Admiral Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Admiral Group plc has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Admiral Group go up and down completely randomly.

Pair Corralation between Fairfax Financial and Admiral Group

Assuming the 90 days horizon Fairfax Financial is expected to generate 88.29 times less return on investment than Admiral Group. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.3 times less risky than Admiral Group. It trades about 0.0 of its potential returns per unit of risk. Admiral Group plc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,144  in Admiral Group plc on December 30, 2024 and sell it today you would earn a total of  232.00  from holding Admiral Group plc or generate 7.38% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Admiral Group plc

Fairfax Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fairfax Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Fairfax Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Admiral Group plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Admiral Group plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Admiral Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fairfax Financial and Admiral Group

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

The idea behind Fairfax Financial Holdings and Admiral Group plc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.