Correlation Between Fairfax Financial and Westport Fuel

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

Diversification Opportunities for Fairfax Financial and Westport Fuel

-0.54

Correlation Coefficient

Fairfax Financial  Westport Fuel

Excellent diversification

The 3 months correlation between Fairfax and Westport is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems 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 Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Westport Fuel go up and down completely randomly.

Pair Corralation between Fairfax Financial and Westport Fuel

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.6 times more return on investment than Westport Fuel. However, Fairfax Financial Holdings is 1.66 times less risky than Westport Fuel. It trades about 0.14 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about -0.03 per unit of risk. If you would invest  153,129  in Fairfax Financial Holdings on September 1, 2024 and sell it today you would earn a total of  45,501  from holding Fairfax Financial Holdings or generate 29.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Westport Fuel Systems

Fairfax Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Fairfax Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Westport Fuel Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Fairfax Financial and Westport Fuel

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

The idea behind Fairfax Financial Holdings and Westport Fuel Systems 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.