Correlation Between Hemisphere Energy and Fairfax Financial

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

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

Diversification Opportunities for Hemisphere Energy and Fairfax Financial

-0.37

Correlation Coefficient

Hemisphere Energy  Fairfax Financial

Very good diversification

The 3 months correlation between Hemisphere and Fairfax is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Hemisphere Energy and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Hemisphere Energy 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 Hemisphere Energy 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 Hemisphere Energy i.e., Hemisphere Energy and Fairfax Financial go up and down completely randomly.

Pair Corralation between Hemisphere Energy and Fairfax Financial

Assuming the 90 days horizon Hemisphere Energy is expected to generate 19.1 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, Hemisphere Energy is 1.54 times less risky than Fairfax Financial. It trades about 0.01 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,264  in Fairfax Financial Holdings on December 4, 2024 and sell it today you would earn a total of  249.00  from holding Fairfax Financial Holdings or generate 11.0% return on investment over 90 days.

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

Hemisphere Energy  vs.  Fairfax Financial Holdings

Hemisphere Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hemisphere Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hemisphere Energy is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Fairfax Financial

Risk-Adjusted Performance

Modest

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

Pair Trading with Hemisphere Energy and Fairfax Financial

The main advantage of trading using opposite Hemisphere Energy and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hemisphere Energy 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 Hemisphere Energy 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.