Correlation Between Mid Cap and The Fairholme

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and The Fairholme Fund, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and The Fairholme.

Diversification Opportunities for Mid Cap and The Fairholme

0.48

Correlation Coefficient

Mid Cap  The Fairholme

Very weak diversification

The 3 months correlation between Mid and The is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x 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 Mid Cap 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 Mid Cap 15x 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 Mid Cap i.e., Mid Cap and The Fairholme go up and down completely randomly.

Pair Corralation between Mid Cap and The Fairholme

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the The Fairholme. In addition to that, Mid Cap is 1.29 times more volatile than The Fairholme Fund. It trades about -0.1 of its total potential returns per unit of risk. The Fairholme Fund is currently generating about 0.08 per unit of volatility. If you would invest  2,915  in The Fairholme Fund on December 18, 2024 and sell it today you would earn a total of  157.00  from holding The Fairholme Fund or generate 5.39% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  The Fairholme Fund

Mid Cap 15x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid Cap 15x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

The Fairholme

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Fairholme Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Fairholme is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and The Fairholme

The main advantage of trading using opposite Mid Cap and The Fairholme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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 Mid Cap 15x 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.