Correlation Between Global X and Fairfax Financial

Can any of the company-specific risk be diversified away by investing in both Global X and Fairfax Financial 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 Global X and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Global X Active and Fairfax Financial Holdings, you can compare the effects of market volatilities on Global X and Fairfax Financial 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 Global X with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and Fairfax Financial.

Diversification Opportunities for Global X and Fairfax Financial

0.88

Correlation Coefficient

Global X  Fairfax Financial

Very poor diversification

The 3 months correlation between Global and Fairfax is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Global X Active and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Global X 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 Global X Active are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Global X i.e., Global X and Fairfax Financial go up and down completely randomly.

Pair Corralation between Global X and Fairfax Financial

Assuming the 90 days trading horizon Global X Active is expected to generate 2.6 times more return on investment than Fairfax Financial. However, Global X is 2.6 times more volatile than Fairfax Financial Holdings. It trades about 0.18 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.12 per unit of risk. If you would invest  919.00  in Global X Active on November 20, 2024 and sell it today you would earn a total of  63.00  from holding Global X Active or generate 6.86% return on investment over 90 days.

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

Global X Active  vs.  Fairfax Financial Holdings

Global X Active

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Active are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Fairfax Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global X and Fairfax Financial

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

The idea behind Global X Active and Fairfax Financial 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.