Correlation Between Fairfax Financial and Savaria
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Savaria 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 Savaria 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 Savaria, you can compare the effects of market volatilities on Fairfax Financial and Savaria 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 Savaria. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Savaria.
Diversification Opportunities for Fairfax Financial and Savaria
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Fairfax and Savaria is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Savaria in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Savaria 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 Savaria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Savaria has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Savaria go up and down completely randomly.
Pair Corralation between Fairfax Financial and Savaria
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.59 times more return on investment than Savaria. However, Fairfax Financial Holdings is 1.69 times less risky than Savaria. It trades about 0.16 of its potential returns per unit of risk. Savaria is currently generating about -0.25 per unit of risk. If you would invest 2,100 in Fairfax Financial Holdings on September 22, 2024 and sell it today you would earn a total of 90.00 from holding Fairfax Financial Holdings or generate 4.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Savaria
Performance |
| Timeline |
| Fairfax Financial |
| Savaria |
Fairfax Financial and Savaria Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Savaria
The main advantage of trading using opposite Fairfax Financial and Savaria positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Savaria 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 Savaria will offset losses from the drop in Savaria's long position.The idea behind Fairfax Financial Holdings and Savaria 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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