Correlation Between JPMorgan Chase and Fairfax Financial

Can any of the company-specific risk be diversified away by investing in both JPMorgan Chase 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 JPMorgan Chase and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JPMorgan Chase Co and Fairfax Financial Holdings, you can compare the effects of market volatilities on JPMorgan Chase 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 JPMorgan Chase with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of JPMorgan Chase and Fairfax Financial.

Diversification Opportunities for JPMorgan Chase and Fairfax Financial

0.74

Correlation Coefficient

JPMorgan Chase  Fairfax Financial

Poor diversification

The 3 months correlation between JPMorgan and Fairfax is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Chase Co and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and JPMorgan Chase 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 JPMorgan Chase Co 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 JPMorgan Chase i.e., JPMorgan Chase and Fairfax Financial go up and down completely randomly.

Pair Corralation between JPMorgan Chase and Fairfax Financial

Assuming the 90 days trading horizon JPMorgan Chase Co is expected to generate 1.24 times more return on investment than Fairfax Financial. However, JPMorgan Chase is 1.24 times more volatile than Fairfax Financial Holdings. It trades about 0.14 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.18 per unit of risk. If you would invest  2,742  in JPMorgan Chase Co on September 12, 2024 and sell it today you would earn a total of  490.00  from holding JPMorgan Chase Co or generate 17.87% return on investment over 90 days.

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

JPMorgan Chase Co  vs.  Fairfax Financial Holdings

JPMorgan Chase

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Chase Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, JPMorgan Chase displayed solid returns over the last few months and may actually be approaching a breakup point.

Fairfax Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JPMorgan Chase and Fairfax Financial

The main advantage of trading using opposite JPMorgan Chase and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JPMorgan Chase 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 JPMorgan Chase Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.