Correlation Between Fairfax Financial and Richards Packaging

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

Diversification Opportunities for Fairfax Financial and Richards Packaging

-0.53

Correlation Coefficient

Fairfax Financial  Richards Packaging

Excellent diversification

The 3 months correlation between Fairfax and Richards is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Richards Packaging Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richards Packaging 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 Richards Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richards Packaging has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Richards Packaging go up and down completely randomly.

Pair Corralation between Fairfax Financial and Richards Packaging

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.92 times more return on investment than Richards Packaging. However, Fairfax Financial Holdings is 1.08 times less risky than Richards Packaging. It trades about 0.09 of its potential returns per unit of risk. Richards Packaging Income is currently generating about -0.17 per unit of risk. If you would invest  145,743  in Fairfax Financial Holdings on January 30, 2024 and sell it today you would earn a total of  2,877  from holding Fairfax Financial Holdings or generate 1.97% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Richards Packaging Income

Fairfax Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Richards Packaging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Richards Packaging Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Richards Packaging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fairfax Financial and Richards Packaging

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

The idea behind Fairfax Financial Holdings and Richards Packaging Income 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.