Correlation Between Canadian Utilities and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Canadian Utilities 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 Canadian Utilities and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian Utilities Limited and Fairfax Financial Holdings, you can compare the effects of market volatilities on Canadian Utilities 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 Canadian Utilities with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Utilities and Fairfax Financial.
Diversification Opportunities for Canadian Utilities and Fairfax Financial
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Canadian and Fairfax is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Canadian Utilities 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 Canadian Utilities Limited 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 Canadian Utilities i.e., Canadian Utilities and Fairfax Financial go up and down completely randomly.
Pair Corralation between Canadian Utilities and Fairfax Financial
Assuming the 90 days horizon Canadian Utilities Limited is expected to under-perform the Fairfax Financial. In addition to that, Canadian Utilities is 1.27 times more volatile than Fairfax Financial Holdings. It trades about -0.17 of its total potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.13 per unit of volatility. If you would invest 2,369 in Fairfax Financial Holdings on October 30, 2024 and sell it today you would earn a total of 76.00 from holding Fairfax Financial Holdings or generate 3.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Canadian Utilities Limited vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Canadian Utilities |
| Fairfax Financial |
Canadian Utilities and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Canadian Utilities and Fairfax Financial
The main advantage of trading using opposite Canadian Utilities and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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.| Canadian Utilities vs. Fortis Inc | Canadian Utilities vs. Emera Inc | Canadian Utilities vs. Algonquin Power Utilities | Canadian Utilities vs. ATCO |
| Fairfax Financial vs. Algoma Steel Group | Fairfax Financial vs. Champion Iron | Fairfax Financial vs. UnitedHealth Group CDR | Fairfax Financial vs. Tree Island Steel |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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