Correlation Between Fairfax Financial and Loews Corp
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Loews Corp 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 Loews Corp 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 Loews Corp, you can compare the effects of market volatilities on Fairfax Financial and Loews Corp 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 Loews Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Loews Corp.
Diversification Opportunities for Fairfax Financial and Loews Corp
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Loews is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Loews Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loews Corp 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 Loews Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loews Corp has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Loews Corp go up and down completely randomly.
Pair Corralation between Fairfax Financial and Loews Corp
Assuming the 90 days horizon Fairfax Financial Holdings is expected to generate 1.57 times more return on investment than Loews Corp. However, Fairfax Financial is 1.57 times more volatile than Loews Corp. It trades about 0.1 of its potential returns per unit of risk. Loews Corp is currently generating about 0.05 per unit of risk. If you would invest 51,210 in Fairfax Financial Holdings on January 21, 2024 and sell it today you would earn a total of 49,425 from holding Fairfax Financial Holdings or generate 96.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.97% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Loews Corp
Performance |
| Timeline |
| Fairfax Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| Loews Corp |
Fairfax Financial and Loews Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Loews Corp
The main advantage of trading using opposite Fairfax Financial and Loews Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Loews Corp 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 Loews Corp will offset losses from the drop in Loews Corp's long position.| Fairfax Financial vs. RLI Corp | Fairfax Financial vs. Chubb | Fairfax Financial vs. Progressive Corp | Fairfax Financial vs. White Mountains Insurance |
| Loews Corp vs. Global Indemnity PLC | Loews Corp vs. Selective Insurance Group | Loews Corp vs. Kemper | Loews Corp vs. Stewart Information Services |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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