Correlation Between Fairfax Financial and Broadcom

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

Diversification Opportunities for Fairfax Financial and Broadcom

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between Fairfax and Broadcom is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Broadcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadcom 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 Broadcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadcom has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Broadcom go up and down completely randomly.

Pair Corralation between Fairfax Financial and Broadcom

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.14 times less return on investment than Broadcom. But when comparing it to its historical volatility, Fairfax Financial Holdings is 2.98 times less risky than Broadcom. It trades about 0.18 of its potential returns per unit of risk. Broadcom is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,668  in Broadcom on September 5, 2024 and sell it today you would earn a total of  352.00  from holding Broadcom or generate 9.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Fairfax Financial Holdings  vs.  Broadcom

 Performance 
       Timeline  
Fairfax Financial 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Broadcom 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Broadcom are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Broadcom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fairfax Financial and Broadcom Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fairfax Financial and Broadcom

The main advantage of trading using opposite Fairfax Financial and Broadcom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Broadcom 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 Broadcom will offset losses from the drop in Broadcom's long position.
The idea behind Fairfax Financial Holdings and Broadcom 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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