Correlation Between Fairfax Financial and Centerra Gold

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

Diversification Opportunities for Fairfax Financial and Centerra Gold

-0.78

Correlation Coefficient

Fairfax Financial  Centerra Gold

Pay attention - limited upside

The 3 months correlation between Fairfax and Centerra is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Centerra Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centerra Gold 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 Centerra Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centerra Gold has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Centerra Gold go up and down completely randomly.

Pair Corralation between Fairfax Financial and Centerra Gold

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.71 times more return on investment than Centerra Gold. However, Fairfax Financial Holdings is 1.4 times less risky than Centerra Gold. It trades about 0.18 of its potential returns per unit of risk. Centerra Gold is currently generating about -0.04 per unit of risk. If you would invest  165,666  in Fairfax Financial Holdings on September 13, 2024 and sell it today you would earn a total of  32,647  from holding Fairfax Financial Holdings or generate 19.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Centerra Gold

Fairfax Financial

Risk-Adjusted Performance

14 of 100

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. 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.

Centerra Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centerra Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Centerra Gold is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fairfax Financial and Centerra Gold

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

The idea behind Fairfax Financial Holdings and Centerra Gold 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.