Correlation Between Fairfax Financial and United Insurance
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and United Insurance 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 United Insurance 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 United Insurance Holdings, you can compare the effects of market volatilities on Fairfax Financial and United Insurance 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 United Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and United Insurance.
Diversification Opportunities for Fairfax Financial and United Insurance
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and United is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and United Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance Holdings 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 United Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Insurance Holdings has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and United Insurance go up and down completely randomly.
Pair Corralation between Fairfax Financial and United Insurance
Assuming the 90 days horizon Fairfax Financial is expected to generate 1.35 times less return on investment than United Insurance. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.51 times less risky than United Insurance. It trades about 0.22 of its potential returns per unit of risk. United Insurance Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,110 in United Insurance Holdings on August 29, 2024 and sell it today you would earn a total of 180.00 from holding United Insurance Holdings or generate 16.22% 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. United Insurance Holdings
Performance |
| Timeline |
| Fairfax Financial |
| United Insurance Holdings |
Fairfax Financial and United Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and United Insurance
The main advantage of trading using opposite Fairfax Financial and United Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, United Insurance 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 United Insurance will offset losses from the drop in United Insurance's long position.| Fairfax Financial vs. Superior Plus Corp | Fairfax Financial vs. NMI Holdings | Fairfax Financial vs. Origin Agritech | Fairfax Financial vs. SIVERS SEMICONDUCTORS AB |
| United Insurance vs. Superior Plus Corp | United Insurance vs. NMI Holdings | United Insurance vs. Origin Agritech | United Insurance vs. SIVERS SEMICONDUCTORS AB |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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