Correlation Between Fairfax Financial and Visa
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Visa 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 Fairfax Financial and Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fairfax Financial Holdings and Visa Inc CDR, you can compare the effects of market volatilities on Fairfax Financial and Visa 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 Fairfax Financial with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Visa.
Diversification Opportunities for Fairfax Financial and Visa
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Visa is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Visa Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc CDR and Fairfax Financial 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 Fairfax Financial Holdings are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc CDR has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Visa go up and down completely randomly.
Pair Corralation between Fairfax Financial and Visa
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.2 times more return on investment than Visa. However, Fairfax Financial is 1.2 times more volatile than Visa Inc CDR. It trades about 0.16 of its potential returns per unit of risk. Visa Inc CDR is currently generating about 0.16 per unit of risk. If you would invest 1,854 in Fairfax Financial Holdings on September 3, 2024 and sell it today you would earn a total of 292.00 from holding Fairfax Financial Holdings or generate 15.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Visa Inc CDR
Performance |
| Timeline |
| Fairfax Financial |
| Visa Inc CDR |
Fairfax Financial and Visa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Visa
The main advantage of trading using opposite Fairfax Financial and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Visa 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 Visa will offset losses from the drop in Visa's long position.| Fairfax Financial vs. Apple Inc CDR | Fairfax Financial vs. Microsoft Corp CDR | Fairfax Financial vs. Amazon CDR | Fairfax Financial vs. Alphabet Inc CDR |
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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