Correlation Between Fairfax Financial and Power Financial
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Power 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 Power 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 Power Financial Corp, you can compare the effects of market volatilities on Fairfax Financial and Power 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 Power Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Power Financial.
Diversification Opportunities for Fairfax Financial and Power Financial
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Power is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Power Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power 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 Power Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Financial Corp has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Power Financial go up and down completely randomly.
Pair Corralation between Fairfax Financial and Power Financial
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.52 times less return on investment than Power Financial. But when comparing it to its historical volatility, Fairfax Financial Holdings is 2.13 times less risky than Power Financial. It trades about 0.26 of its potential returns per unit of risk. Power Financial Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 1,621 in Power Financial Corp on October 24, 2024 and sell it today you would earn a total of 103.00 from holding Power Financial Corp or generate 6.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Power Financial Corp
Performance |
| Timeline |
| Fairfax Financial |
| Power Financial Corp |
Fairfax Financial and Power Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Power Financial
The main advantage of trading using opposite Fairfax Financial and Power Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Power 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 Power Financial will offset losses from the drop in Power Financial's long position.| Fairfax Financial vs. Westshore Terminals Investment | Fairfax Financial vs. Reliq Health Technologies | Fairfax Financial vs. Leveljump Healthcare Corp | Fairfax Financial vs. CVS HEALTH CDR |
| Power Financial vs. NeXGold Mining Corp | Power Financial vs. CVS HEALTH CDR | Power Financial vs. UnitedHealth Group CDR | Power Financial vs. Thunderbird Entertainment Group |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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