Correlation Between The Fairholme and Vanguard Balanced

Can any of the company-specific risk be diversified away by investing in both The Fairholme and Vanguard Balanced 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 The Fairholme and Vanguard Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Fairholme Focused and Vanguard Balanced Index, you can compare the effects of market volatilities on The Fairholme and Vanguard Balanced 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 The Fairholme with a short position of Vanguard Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Fairholme and Vanguard Balanced.

Diversification Opportunities for The Fairholme and Vanguard Balanced

0.74

Correlation Coefficient

The Fairholme  Vanguard Balanced

Poor diversification

The 3 months correlation between THE and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Fairholme Focused and Vanguard Balanced Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Balanced Index and The Fairholme 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 The Fairholme Focused are associated (or correlated) with Vanguard Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Balanced Index has no effect on the direction of The Fairholme i.e., The Fairholme and Vanguard Balanced go up and down completely randomly.

Pair Corralation between The Fairholme and Vanguard Balanced

Assuming the 90 days horizon The Fairholme Focused is expected to generate 1.02 times more return on investment than Vanguard Balanced. However, The Fairholme is 1.02 times more volatile than Vanguard Balanced Index. It trades about 0.25 of its potential returns per unit of risk. Vanguard Balanced Index is currently generating about 0.09 per unit of risk. If you would invest  1,312  in The Fairholme Focused on October 25, 2024 and sell it today you would earn a total of  123.00  from holding The Fairholme Focused or generate 9.38% return on investment over 90 days.

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

The Fairholme Focused  vs.  Vanguard Balanced Index

Fairholme Focused

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Fairholme Focused are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, The Fairholme may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard Balanced Index

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Balanced Index are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with The Fairholme and Vanguard Balanced

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

The idea behind The Fairholme Focused and Vanguard Balanced Index 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.