Correlation Between Fairfax Financial and CNA Financial

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

Diversification Opportunities for Fairfax Financial and CNA Financial

0.27

Correlation Coefficient

Fairfax Financial  CNA Financial

Modest diversification

The 3 months correlation between Fairfax and CNA is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and CNA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNA Financial 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 CNA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNA Financial has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and CNA Financial go up and down completely randomly.

Pair Corralation between Fairfax Financial and CNA Financial

If you would invest  4,331  in CNA Financial on February 27, 2024 and sell it today you would earn a total of  74.00  from holding CNA Financial or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	4.76%
Values	Daily Returns

Fairfax Financial Holdings  vs.  CNA Financial

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

CNA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CNA Financial 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 CNA Financial

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

The idea behind Fairfax Financial Holdings and CNA Financial 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 Global Correlations module to find global opportunities by holding instruments from different markets.