Correlation Between Economic Investment and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Economic Investment 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 Economic Investment and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Economic Investment Trust and Fairfax Financial Holdings, you can compare the effects of market volatilities on Economic Investment 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 Economic Investment with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Economic Investment and Fairfax Financial.
Diversification Opportunities for Economic Investment and Fairfax Financial
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Economic and Fairfax is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Economic Investment Trust and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Economic Investment 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 Economic Investment Trust 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 Economic Investment i.e., Economic Investment and Fairfax Financial go up and down completely randomly.
Pair Corralation between Economic Investment and Fairfax Financial
Assuming the 90 days trading horizon Economic Investment Trust is expected to generate 1.64 times more return on investment than Fairfax Financial. However, Economic Investment is 1.64 times more volatile than Fairfax Financial Holdings. It trades about 0.39 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.25 per unit of risk. If you would invest 16,484 in Economic Investment Trust on October 25, 2024 and sell it today you would earn a total of 1,642 from holding Economic Investment Trust or generate 9.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Economic Investment Trust vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Economic Investment Trust |
| Fairfax Financial |
Economic Investment and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Economic Investment and Fairfax Financial
The main advantage of trading using opposite Economic Investment and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Economic Investment 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.| Economic Investment vs. Uniteds Limited | Economic Investment vs. E L Financial Corp | Economic Investment vs. Canadian General Investments | Economic Investment vs. Clairvest Group |
| Fairfax Financial vs. Brookfield Investments | Fairfax Financial vs. Economic Investment Trust | Fairfax Financial vs. Data Communications Management | Fairfax Financial vs. HPQ Silicon Resources |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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