Correlation Between Fairfax Financial and NexPoint Hospitality
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and NexPoint Hospitality 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 NexPoint Hospitality 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 NexPoint Hospitality Trust, you can compare the effects of market volatilities on Fairfax Financial and NexPoint Hospitality 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 NexPoint Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and NexPoint Hospitality.
Diversification Opportunities for Fairfax Financial and NexPoint Hospitality
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Fairfax and NexPoint is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and NexPoint Hospitality Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexPoint Hospitality 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 NexPoint Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexPoint Hospitality has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and NexPoint Hospitality go up and down completely randomly.
Pair Corralation between Fairfax Financial and NexPoint Hospitality
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 10.78 times less return on investment than NexPoint Hospitality. But when comparing it to its historical volatility, Fairfax Financial Holdings is 31.27 times less risky than NexPoint Hospitality. It trades about 0.13 of its potential returns per unit of risk. NexPoint Hospitality Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 144.00 in NexPoint Hospitality Trust on August 29, 2024 and sell it today you would lose (114.00) from holding NexPoint Hospitality Trust or give up 79.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. NexPoint Hospitality Trust
Performance |
| Timeline |
| Fairfax Financial |
| NexPoint Hospitality |
Fairfax Financial and NexPoint Hospitality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and NexPoint Hospitality
The main advantage of trading using opposite Fairfax Financial and NexPoint Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, NexPoint Hospitality 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 NexPoint Hospitality will offset losses from the drop in NexPoint Hospitality's long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
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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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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