Correlation Between Fairfax Financial and Palomar Holdings

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

Diversification Opportunities for Fairfax Financial and Palomar Holdings

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Correlation Coefficient

Fairfax Financial  Palomar Holdings

Pay attention - limited upside

The 3 months correlation between Fairfax and Palomar is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar Holdings 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 Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Palomar Holdings go up and down completely randomly.

Pair Corralation between Fairfax Financial and Palomar Holdings

Assuming the 90 days horizon Fairfax Financial is expected to generate 1.18 times less return on investment than Palomar Holdings. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.54 times less risky than Palomar Holdings. It trades about 0.1 of its potential returns per unit of risk. Palomar Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,088  in Palomar Holdings on October 3, 2024 and sell it today you would earn a total of  5,471  from holding Palomar Holdings or generate 107.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	23.58%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Palomar Holdings

Fairfax Financial

Risk-Adjusted Performance

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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 technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Palomar Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Palomar Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fairfax Financial and Palomar Holdings

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

The idea behind Fairfax Financial Holdings and Palomar Holdings 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.