Correlation Between Universal Insurance and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Universal Insurance 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 Universal Insurance and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Insurance Holdings and Fairfax Financial Holdings, you can compare the effects of market volatilities on Universal Insurance 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 Universal Insurance with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Fairfax Financial.
Diversification Opportunities for Universal Insurance and Fairfax Financial
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Universal and Fairfax is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Universal Insurance 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 Universal Insurance Holdings 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 Universal Insurance i.e., Universal Insurance and Fairfax Financial go up and down completely randomly.
Pair Corralation between Universal Insurance and Fairfax Financial
Assuming the 90 days horizon Universal Insurance Holdings is expected to generate 1.8 times more return on investment than Fairfax Financial. However, Universal Insurance is 1.8 times more volatile than Fairfax Financial Holdings. It trades about 0.08 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.12 per unit of risk. If you would invest 879.00 in Universal Insurance Holdings on September 3, 2024 and sell it today you would earn a total of 1,281 from holding Universal Insurance Holdings or generate 145.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Insurance Holdings vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Universal Insurance |
| Fairfax Financial |
Universal Insurance and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Insurance and Fairfax Financial
The main advantage of trading using opposite Universal Insurance and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance 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.| Universal Insurance vs. The Progressive | Universal Insurance vs. The Allstate | Universal Insurance vs. PICC Property and | Universal Insurance vs. Fairfax Financial Holdings |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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