Correlation Between Pure Energy and Fairfax Financial

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

Diversification Opportunities for Pure Energy and Fairfax Financial

-0.49

Correlation Coefficient

Pure Energy  Fairfax Financial

Very good diversification

The 3 months correlation between Pure and Fairfax is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Pure Energy Minerals and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Pure 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 Pure Energy Minerals 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 Pure Energy i.e., Pure Energy and Fairfax Financial go up and down completely randomly.

Pair Corralation between Pure Energy and Fairfax Financial

Given the investment horizon of 90 days Pure Energy Minerals is expected to under-perform the Fairfax Financial. In addition to that, Pure Energy is 6.73 times more volatile than Fairfax Financial Holdings. It trades about -0.04 of its total potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.12 per unit of volatility. If you would invest  1,622  in Fairfax Financial Holdings on October 22, 2024 and sell it today you would earn a total of  828.00  from holding Fairfax Financial Holdings or generate 51.05% return on investment over 90 days.

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

Pure Energy Minerals  vs.  Fairfax Financial Holdings

Pure Energy Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fairfax Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Pure Energy and Fairfax Financial

The main advantage of trading using opposite Pure Energy and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pure 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 Pure Energy Minerals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.