Correlation Between Algoma Central and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Algoma Central 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 Algoma Central and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Algoma Central and Fairfax Financial Holdings, you can compare the effects of market volatilities on Algoma Central 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 Algoma Central with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algoma Central and Fairfax Financial.
Diversification Opportunities for Algoma Central and Fairfax Financial
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Algoma and Fairfax is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Central and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Algoma Central 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 Algoma Central 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 Algoma Central i.e., Algoma Central and Fairfax Financial go up and down completely randomly.
Pair Corralation between Algoma Central and Fairfax Financial
Assuming the 90 days trading horizon Algoma Central is expected to generate 12.46 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, Algoma Central is 1.5 times less risky than Fairfax Financial. It trades about 0.02 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 168,382 in Fairfax Financial Holdings on August 28, 2024 and sell it today you would earn a total of 28,702 from holding Fairfax Financial Holdings or generate 17.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Algoma Central vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Algoma Central |
| Fairfax Financial |
Algoma Central and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Algoma Central and Fairfax Financial
The main advantage of trading using opposite Algoma Central and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algoma Central 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.| Algoma Central vs. Ritchie Bros Auctioneers | Algoma Central vs. Winpak | Algoma Central vs. North West | Algoma Central vs. Altus Group Limited |
| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
Check out your portfolio center.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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