Correlation Between Major Drilling and Fairfax Financial

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

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

Diversification Opportunities for Major Drilling and Fairfax Financial

0.46

Correlation Coefficient

Major Drilling  Fairfax Financial

Very weak diversification

The 3 months correlation between Major and Fairfax is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Major Drilling 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 Major Drilling Group 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 Major Drilling i.e., Major Drilling and Fairfax Financial go up and down completely randomly.

Pair Corralation between Major Drilling and Fairfax Financial

Assuming the 90 days trading horizon Major Drilling is expected to generate 1.66 times less return on investment than Fairfax Financial. In addition to that, Major Drilling is 1.26 times more volatile than Fairfax Financial Holdings. It trades about 0.09 of its total potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.18 per unit of volatility. If you would invest  1,920  in Fairfax Financial Holdings on September 14, 2024 and sell it today you would earn a total of  365.00  from holding Fairfax Financial Holdings or generate 19.01% return on investment over 90 days.

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

Major Drilling Group  vs.  Fairfax Financial Holdings

Major Drilling Group

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Major Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fairfax Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and Fairfax Financial

The main advantage of trading using opposite Major Drilling and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling 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 Major Drilling Group 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.