Correlation Between Walmart and Fairfax Financial

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

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

Diversification Opportunities for Walmart and Fairfax Financial

0.94

Correlation Coefficient

Walmart  Fairfax Financial

Almost no diversification

The 3 months correlation between Walmart and Fairfax is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Walmart Inc CDR and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Walmart 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 Walmart Inc CDR 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 Walmart i.e., Walmart and Fairfax Financial go up and down completely randomly.

Pair Corralation between Walmart and Fairfax Financial

Assuming the 90 days trading horizon Walmart is expected to generate 1.33 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, Walmart Inc CDR is 1.54 times less risky than Fairfax Financial. It trades about 0.21 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  167,109  in Fairfax Financial Holdings on September 23, 2024 and sell it today you would earn a total of  32,687  from holding Fairfax Financial Holdings or generate 19.56% return on investment over 90 days.

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

Walmart Inc CDR  vs.  Fairfax Financial Holdings

Walmart Inc CDR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart Inc CDR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Walmart displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Walmart and Fairfax Financial

The main advantage of trading using opposite Walmart and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart Inc CDR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.