Correlation Between Fairfax Financial and Renoworks Software

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

Diversification Opportunities for Fairfax Financial and Renoworks Software

0.9

Correlation Coefficient

Fairfax Financial  Renoworks Software

Almost no diversification

The 3 months correlation between Fairfax and Renoworks is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Renoworks Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renoworks Software 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 Renoworks Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renoworks Software has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Renoworks Software go up and down completely randomly.

Pair Corralation between Fairfax Financial and Renoworks Software

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 2.7 times less return on investment than Renoworks Software. But when comparing it to its historical volatility, Fairfax Financial Holdings is 4.18 times less risky than Renoworks Software. It trades about 0.24 of its potential returns per unit of risk. Renoworks Software is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Renoworks Software on September 4, 2024 and sell it today you would earn a total of  9.00  from holding Renoworks Software or generate 42.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Renoworks Software

Fairfax Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Renoworks Software

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Renoworks Software are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Renoworks Software showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Renoworks Software

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

The idea behind Fairfax Financial Holdings and Renoworks Software 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.