Correlation Between Fairfax Financial and Definity Financial
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Definity 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 Definity 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 Definity Financial Corp, you can compare the effects of market volatilities on Fairfax Financial and Definity 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 Definity Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Definity Financial.
Diversification Opportunities for Fairfax Financial and Definity Financial
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Fairfax and Definity is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Definity Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definity 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 Definity Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definity Financial Corp has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Definity Financial go up and down completely randomly.
Pair Corralation between Fairfax Financial and Definity Financial
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 2.38 times more return on investment than Definity Financial. However, Fairfax Financial is 2.38 times more volatile than Definity Financial Corp. It trades about 0.26 of its potential returns per unit of risk. Definity Financial Corp is currently generating about 0.24 per unit of risk. If you would invest 1,892 in Fairfax Financial Holdings on August 28, 2024 and sell it today you would earn a total of 335.00 from holding Fairfax Financial Holdings or generate 17.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Definity Financial Corp
Performance |
| Timeline |
| Fairfax Financial |
| Definity Financial Corp |
Fairfax Financial and Definity Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Definity Financial
The main advantage of trading using opposite Fairfax Financial and Definity Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Definity 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 Definity Financial will offset losses from the drop in Definity Financial's long position.| Fairfax Financial vs. Definity Financial Corp | Fairfax Financial vs. Forstrong Global Income | Fairfax Financial vs. BMO Aggregate Bond | Fairfax Financial vs. Terreno Resources Corp |
| Definity Financial vs. Trisura Group | Definity Financial vs. Pet Valu Holdings | Definity Financial vs. Intact Financial | Definity Financial vs. Topaz Energy Corp |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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