Correlation Between Leading Edge and Fairfax Financial

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

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

Diversification Opportunities for Leading Edge and Fairfax Financial

-0.61

Correlation Coefficient

Leading Edge  Fairfax Financial

Excellent diversification

The 3 months correlation between Leading and Fairfax is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Leading Edge 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 Leading Edge Materials 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 Leading Edge i.e., Leading Edge and Fairfax Financial go up and down completely randomly.

Pair Corralation between Leading Edge and Fairfax Financial

Assuming the 90 days horizon Leading Edge is expected to generate 1.14 times less return on investment than Fairfax Financial. In addition to that, Leading Edge is 2.72 times more volatile than Fairfax Financial Holdings. It trades about 0.01 of its total potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.04 per unit of volatility. If you would invest  2,250  in Fairfax Financial Holdings on October 4, 2024 and sell it today you would earn a total of  20.00  from holding Fairfax Financial Holdings or generate 0.89% return on investment over 90 days.

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

Leading Edge Materials  vs.  Fairfax Financial Holdings

Leading Edge Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leading Edge Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Fairfax Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leading Edge and Fairfax Financial

The main advantage of trading using opposite Leading Edge and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leading Edge 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 Leading Edge Materials 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.