Correlation Between White Mountains and Fairfax Financial

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

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

Diversification Opportunities for White Mountains and Fairfax Financial

0.28

Correlation Coefficient

White Mountains  Fairfax Financial

Modest diversification

The 3 months correlation between White and Fairfax is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding White Mountains Insurance and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and White Mountains 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 White Mountains Insurance 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 White Mountains i.e., White Mountains and Fairfax Financial go up and down completely randomly.

Pair Corralation between White Mountains and Fairfax Financial

Considering the 90-day investment horizon White Mountains Insurance is expected to under-perform the Fairfax Financial. In addition to that, White Mountains is 3.14 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 0.23 per unit of volatility. If you would invest  1,744  in Fairfax Financial Holdings on October 9, 2024 and sell it today you would earn a total of  32.00  from holding Fairfax Financial Holdings or generate 1.83% return on investment over 90 days.

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

White Mountains Insurance  vs.  Fairfax Financial Holdings

White Mountains Insurance

Risk-Adjusted Performance

6 of 100

OK

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

Fairfax Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Fairfax Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with White Mountains and Fairfax Financial

The main advantage of trading using opposite White Mountains and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if White Mountains 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 White Mountains Insurance 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.