Correlation Between Dow 2x and The Fairholme

Can any of the company-specific risk be diversified away by investing in both Dow 2x and The Fairholme 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 Dow 2x and The Fairholme into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dow 2x Strategy and The Fairholme Fund, you can compare the effects of market volatilities on Dow 2x and The Fairholme 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 Dow 2x with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow 2x and The Fairholme.

Diversification Opportunities for Dow 2x and The Fairholme

0.42

Correlation Coefficient

Dow 2x  The Fairholme

Very weak diversification

The 3 months correlation between Dow and The is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Dow 2x Strategy and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Fairholme and Dow 2x 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 Dow 2x Strategy are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Fairholme has no effect on the direction of Dow 2x i.e., Dow 2x and The Fairholme go up and down completely randomly.

Pair Corralation between Dow 2x and The Fairholme

Assuming the 90 days horizon Dow 2x is expected to generate 1.31 times less return on investment than The Fairholme. In addition to that, Dow 2x is 1.32 times more volatile than The Fairholme Fund. It trades about 0.12 of its total potential returns per unit of risk. The Fairholme Fund is currently generating about 0.21 per unit of volatility. If you would invest  2,974  in The Fairholme Fund on October 25, 2024 and sell it today you would earn a total of  139.00  from holding The Fairholme Fund or generate 4.67% return on investment over 90 days.

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

Dow 2x Strategy  vs.  The Fairholme Fund

Dow 2x Strategy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dow 2x Strategy are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dow 2x may actually be approaching a critical reversion point that can send shares even higher in February 2025.

The Fairholme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Dow 2x and The Fairholme

The main advantage of trading using opposite Dow 2x and The Fairholme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 2x position performs unexpectedly, The Fairholme 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 The Fairholme will offset losses from the drop in The Fairholme's long position.

The idea behind Dow 2x Strategy and The Fairholme Fund 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.