Correlation Between Salesforce and Fairfax Financial

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Can any of the company-specific risk be diversified away by investing in both Salesforce and Fairfax 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 Salesforce and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SalesforceCom CDR and Fairfax Financial Holdings, you can compare the effects of market volatilities on Salesforce and Fairfax 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 Salesforce with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and Fairfax Financial.

Diversification Opportunities for Salesforce and Fairfax Financial

SalesforceFairfaxDiversified AwaySalesforceFairfaxDiversified Away100%
0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Salesforce and Fairfax is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SalesforceCom CDR and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Salesforce 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 SalesforceCom CDR are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Salesforce i.e., Salesforce and Fairfax Financial go up and down completely randomly.

Pair Corralation between Salesforce and Fairfax Financial

Assuming the 90 days trading horizon SalesforceCom CDR is expected to generate 1.35 times more return on investment than Fairfax Financial. However, Salesforce is 1.35 times more volatile than Fairfax Financial Holdings. It trades about 0.13 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.16 per unit of risk. If you would invest  2,047  in SalesforceCom CDR on September 21, 2024 and sell it today you would earn a total of  625.00  from holding SalesforceCom CDR or generate 30.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

SalesforceCom CDR  vs.  Fairfax Financial Holdings

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 010203040
JavaScript chart by amCharts 3.21.15CRM FFH-PE
       Timeline  
SalesforceCom CDR 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SalesforceCom CDR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec2223242526272829
Fairfax Financial 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec17181920212223

Salesforce and Fairfax Financial Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.93-5.19-3.45-1.710.01.893.815.727.64 0.020.040.060.080.100.12
JavaScript chart by amCharts 3.21.15CRM FFH-PE
       Returns  

Pair Trading with Salesforce and Fairfax Financial

The main advantage of trading using opposite Salesforce and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce position performs unexpectedly, Fairfax 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 Fairfax Financial will offset losses from the drop in Fairfax Financial's long position.
The idea behind SalesforceCom CDR and Fairfax Financial Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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