Correlation Between Specialized Technology and The Fairholme
Can any of the company-specific risk be diversified away by investing in both Specialized Technology and The Fairholme 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 Specialized Technology and The Fairholme into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Specialized Technology Fund and The Fairholme Fund, you can compare the effects of market volatilities on Specialized Technology and The Fairholme 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 Specialized Technology with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Specialized Technology and The Fairholme.
Diversification Opportunities for Specialized Technology and The Fairholme
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Specialized and The is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Specialized Technology Fund and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Fairholme and Specialized Technology 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 Specialized Technology Fund are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Fairholme has no effect on the direction of Specialized Technology i.e., Specialized Technology and The Fairholme go up and down completely randomly.
Pair Corralation between Specialized Technology and The Fairholme
Assuming the 90 days horizon Specialized Technology is expected to generate 1.82 times less return on investment than The Fairholme. But when comparing it to its historical volatility, Specialized Technology Fund is 1.24 times less risky than The Fairholme. It trades about 0.15 of its potential returns per unit of risk. The Fairholme Fund is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 2,966 in The Fairholme Fund on October 24, 2024 and sell it today you would earn a total of 147.00 from holding The Fairholme Fund or generate 4.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Specialized Technology Fund vs. The Fairholme Fund
Performance |
| Timeline |
| Specialized Technology |
| The Fairholme |
Specialized Technology and The Fairholme Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Specialized Technology and The Fairholme
The main advantage of trading using opposite Specialized Technology and The Fairholme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Specialized Technology position performs unexpectedly, The Fairholme 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 The Fairholme will offset losses from the drop in The Fairholme's long position.The idea behind Specialized Technology Fund and The Fairholme Fund 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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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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