Correlation Between Fairfax Financial and Firm Capital

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Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Firm Capital 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 Firm Capital 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 Firm Capital Mortgage, you can compare the effects of market volatilities on Fairfax Financial and Firm Capital 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 Firm Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Firm Capital.

Diversification Opportunities for Fairfax Financial and Firm Capital

FairfaxFirmDiversified AwayFairfaxFirmDiversified Away100%
-0.08
  Correlation Coefficient

Good diversification

The 3 months correlation between Fairfax and Firm is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Firm Capital Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firm Capital Mortgage 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 Firm Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firm Capital Mortgage has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Firm Capital go up and down completely randomly.

Pair Corralation between Fairfax Financial and Firm Capital

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.33 times more return on investment than Firm Capital. However, Fairfax Financial is 1.33 times more volatile than Firm Capital Mortgage. It trades about 0.11 of its potential returns per unit of risk. Firm Capital Mortgage is currently generating about 0.09 per unit of risk. If you would invest  149,174  in Fairfax Financial Holdings on November 24, 2024 and sell it today you would earn a total of  51,426  from holding Fairfax Financial Holdings or generate 34.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Fairfax Financial Holdings  vs.  Firm Capital Mortgage

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -505
JavaScript chart by amCharts 3.21.15FFH FC
       Timeline  
Fairfax Financial 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1,9001,9502,0002,0502,100
Firm Capital Mortgage 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Firm Capital may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb11.211.411.611.81212.2

Fairfax Financial and Firm Capital Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.88-2.16-1.44-0.710.01270.761.522.283.04 0.10.20.30.4
JavaScript chart by amCharts 3.21.15FFH FC
       Returns  

Pair Trading with Fairfax Financial and Firm Capital

The main advantage of trading using opposite Fairfax Financial and Firm Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Firm Capital 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 Firm Capital will offset losses from the drop in Firm Capital's long position.
The idea behind Fairfax Financial Holdings and Firm Capital Mortgage 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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