Correlation Between Fairfax Financial and Intact Financial
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Intact 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 Fairfax Financial and Intact Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fairfax Financial Holdings and Intact Financial Corp, you can compare the effects of market volatilities on Fairfax Financial and Intact 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 Fairfax Financial with a short position of Intact Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Intact Financial.
Diversification Opportunities for Fairfax Financial and Intact Financial
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Fairfax and Intact is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Intact Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intact Financial Corp and Fairfax Financial 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 Fairfax Financial Holdings are associated (or correlated) with Intact Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intact Financial Corp has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Intact Financial go up and down completely randomly.
Pair Corralation between Fairfax Financial and Intact Financial
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 2.74 times more return on investment than Intact Financial. However, Fairfax Financial is 2.74 times more volatile than Intact Financial Corp. It trades about 0.28 of its potential returns per unit of risk. Intact Financial Corp is currently generating about 0.21 per unit of risk. If you would invest 2,356 in Fairfax Financial Holdings on September 14, 2024 and sell it today you would earn a total of 184.00 from holding Fairfax Financial Holdings or generate 7.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Intact Financial Corp
Performance |
| Timeline |
| Fairfax Financial |
| Intact Financial Corp |
Fairfax Financial and Intact Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Intact Financial
The main advantage of trading using opposite Fairfax Financial and Intact Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Intact 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 Intact Financial will offset losses from the drop in Intact Financial's long position.The idea behind Fairfax Financial Holdings and Intact Financial Corp 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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