Correlation Between First Acceptance and Fairfax Financial

Can any of the company-specific risk be diversified away by investing in both First Acceptance and Fairfax Financial 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 First Acceptance and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Acceptance Corp and Fairfax Financial Holdings, you can compare the effects of market volatilities on First Acceptance and Fairfax Financial 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 First Acceptance with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Acceptance and Fairfax Financial.

Diversification Opportunities for First Acceptance and Fairfax Financial

-0.61

Correlation Coefficient

First Acceptance  Fairfax Financial

Excellent diversification

The 3 months correlation between First and Fairfax is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Acceptance Corp and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and First Acceptance 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 First Acceptance Corp are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of First Acceptance i.e., First Acceptance and Fairfax Financial go up and down completely randomly.

Pair Corralation between First Acceptance and Fairfax Financial

If you would invest  100,635  in Fairfax Financial Holdings on January 28, 2024 and sell it today you would earn a total of  0.00  from holding Fairfax Financial Holdings or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

First Acceptance Corp  vs.  Fairfax Financial Holdings

First Acceptance Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Acceptance Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, First Acceptance is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Fairfax Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fairfax Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with First Acceptance and Fairfax Financial

The main advantage of trading using opposite First Acceptance and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Acceptance position performs unexpectedly, Fairfax Financial 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 Fairfax Financial will offset losses from the drop in Fairfax Financial's long position.

The idea behind First Acceptance Corp and Fairfax Financial Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.