Correlation Between Fairfax Financial and Brookfield Office
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Brookfield Office 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 Brookfield Office 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 Brookfield Office Properties, you can compare the effects of market volatilities on Fairfax Financial and Brookfield Office 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 Brookfield Office. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Brookfield Office.
Diversification Opportunities for Fairfax Financial and Brookfield Office
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fairfax and Brookfield is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Brookfield Office Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Office 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 Brookfield Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Office has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Brookfield Office go up and down completely randomly.
Pair Corralation between Fairfax Financial and Brookfield Office
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.46 times less return on investment than Brookfield Office. In addition to that, Fairfax Financial is 1.26 times more volatile than Brookfield Office Properties. It trades about 0.12 of its total potential returns per unit of risk. Brookfield Office Properties is currently generating about 0.21 per unit of volatility. If you would invest 2,030 in Brookfield Office Properties on September 25, 2024 and sell it today you would earn a total of 90.00 from holding Brookfield Office Properties or generate 4.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Brookfield Office Properties
Performance |
| Timeline |
| Fairfax Financial |
| Brookfield Office |
Fairfax Financial and Brookfield Office Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Brookfield Office
The main advantage of trading using opposite Fairfax Financial and Brookfield Office positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Brookfield Office 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 Brookfield Office will offset losses from the drop in Brookfield Office's long position.The idea behind Fairfax Financial Holdings and Brookfield Office Properties 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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