Correlation Between Fairfax Financial and Allstate
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Allstate 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 Allstate 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 The Allstate, you can compare the effects of market volatilities on Fairfax Financial and Allstate 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 Allstate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Allstate.
Diversification Opportunities for Fairfax Financial and Allstate
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Allstate is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and The Allstate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allstate 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 Allstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allstate has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Allstate go up and down completely randomly.
Pair Corralation between Fairfax Financial and Allstate
Assuming the 90 days horizon Fairfax Financial Holdings is expected to generate 1.93 times more return on investment than Allstate. However, Fairfax Financial is 1.93 times more volatile than The Allstate. It trades about 0.15 of its potential returns per unit of risk. The Allstate is currently generating about 0.22 per unit of risk. If you would invest 79,095 in Fairfax Financial Holdings on January 18, 2024 and sell it today you would earn a total of 21,540 from holding Fairfax Financial Holdings or generate 27.23% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 68.29% |
Values | Daily Returns |
Fairfax Financial Holdings vs. The Allstate
Performance |
Timeline |
Fairfax Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
Allstate |
Fairfax Financial and Allstate Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Fairfax Financial and Allstate
The main advantage of trading using opposite Fairfax Financial and Allstate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Allstate 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 Allstate will offset losses from the drop in Allstate's long position.Fairfax Financial vs. RLI Corp | Fairfax Financial vs. Chubb | Fairfax Financial vs. Progressive Corp | Fairfax Financial vs. White Mountains Insurance |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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