Correlation Between Liberty All and The Fairholme

Can any of the company-specific risk be diversified away by investing in both Liberty All and The Fairholme 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 Liberty All and The Fairholme into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liberty All Star and The Fairholme Fund, you can compare the effects of market volatilities on Liberty All and The Fairholme 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 Liberty All with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty All and The Fairholme.

Diversification Opportunities for Liberty All and The Fairholme

-0.6

Correlation Coefficient

Liberty All  The Fairholme

Excellent diversification

The 3 months correlation between Liberty and The is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Liberty All Star and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Fairholme and Liberty All 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 Liberty All Star are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Fairholme has no effect on the direction of Liberty All i.e., Liberty All and The Fairholme go up and down completely randomly.

Pair Corralation between Liberty All and The Fairholme

Considering the 90-day investment horizon Liberty All Star is expected to generate 0.77 times more return on investment than The Fairholme. However, Liberty All Star is 1.3 times less risky than The Fairholme. It trades about 0.18 of its potential returns per unit of risk. The Fairholme Fund is currently generating about -0.11 per unit of risk. If you would invest  665.00  in Liberty All Star on September 5, 2024 and sell it today you would earn a total of  65.00  from holding Liberty All Star or generate 9.77% return on investment over 90 days.

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

Liberty All Star  vs.  The Fairholme Fund

Liberty All Star

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty All Star are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak basic indicators, Liberty All may actually be approaching a critical reversion point that can send shares even higher in January 2025.

The Fairholme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Liberty All and The Fairholme

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

The idea behind Liberty All Star and The Fairholme Fund 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.