Correlation Between Berkshire Hathaway and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway 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 Berkshire Hathaway and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Berkshire Hathaway CDR and Fairfax Financial Holdings, you can compare the effects of market volatilities on Berkshire Hathaway 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 Berkshire Hathaway with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Fairfax Financial.
Diversification Opportunities for Berkshire Hathaway and Fairfax Financial
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Berkshire and Fairfax is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway CDR and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Berkshire Hathaway 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 Berkshire Hathaway CDR 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 Berkshire Hathaway i.e., Berkshire Hathaway and Fairfax Financial go up and down completely randomly.
Pair Corralation between Berkshire Hathaway and Fairfax Financial
Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 1.68 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, Berkshire Hathaway CDR is 1.55 times less risky than Fairfax Financial. It trades about 0.23 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 175,258 in Fairfax Financial Holdings on August 31, 2024 and sell it today you would earn a total of 22,130 from holding Fairfax Financial Holdings or generate 12.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Berkshire Hathaway CDR vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Berkshire Hathaway CDR |
| Fairfax Financial |
Berkshire Hathaway and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Berkshire Hathaway and Fairfax Financial
The main advantage of trading using opposite Berkshire Hathaway and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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.| Berkshire Hathaway vs. iShares Canadian HYBrid | Berkshire Hathaway vs. Brompton European Dividend | Berkshire Hathaway vs. Solar Alliance Energy | Berkshire Hathaway vs. PHN Multi Style All Cap |
| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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