Correlation Between Fairfax Financial and Insurance Australia

Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Insurance Australia 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 Insurance Australia 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 Insurance Australia Group, you can compare the effects of market volatilities on Fairfax Financial and Insurance Australia 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 Insurance Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Insurance Australia.

Diversification Opportunities for Fairfax Financial and Insurance Australia

0.91

Correlation Coefficient

Fairfax Financial  Insurance Australia

Almost no diversification

The 3 months correlation between Fairfax and Insurance is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia 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 Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Insurance Australia go up and down completely randomly.

Pair Corralation between Fairfax Financial and Insurance Australia

Assuming the 90 days horizon Fairfax Financial Holdings is expected to generate 0.89 times more return on investment than Insurance Australia. However, Fairfax Financial Holdings is 1.12 times less risky than Insurance Australia. It trades about 0.11 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.06 per unit of risk. If you would invest  63,629  in Fairfax Financial Holdings on March 31, 2025 and sell it today you would earn a total of  88,171  from holding Fairfax Financial Holdings or generate 138.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Insurance Australia Group

Fairfax Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Fairfax Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Insurance Australia

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Pair Trading with Fairfax Financial and Insurance Australia

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

The idea behind Fairfax Financial Holdings and Insurance Australia Group 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.