Correlation Between Fairfax Financial and Cognex

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

Diversification Opportunities for Fairfax Financial and Cognex

-0.02

Correlation Coefficient

Fairfax Financial  Cognex

Good diversification

The 3 months correlation between Fairfax and Cognex is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Cognex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognex 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 Cognex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognex has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Cognex go up and down completely randomly.

Pair Corralation between Fairfax Financial and Cognex

Assuming the 90 days horizon Fairfax Financial Holdings is expected to generate 0.29 times more return on investment than Cognex. However, Fairfax Financial Holdings is 3.45 times less risky than Cognex. It trades about 0.06 of its potential returns per unit of risk. Cognex is currently generating about 0.01 per unit of risk. If you would invest  1,034  in Fairfax Financial Holdings on July 24, 2024 and sell it today you would earn a total of  221.00  from holding Fairfax Financial Holdings or generate 21.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Cognex

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 nearly stable technical indicators, Fairfax Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cognex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cognex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in November 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Fairfax Financial and Cognex

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

The idea behind Fairfax Financial Holdings and Cognex 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.