Correlation Between Fairfax Financial and CES Energy
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and CES Energy 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 CES Energy 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 CES Energy Solutions, you can compare the effects of market volatilities on Fairfax Financial and CES Energy 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 CES Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and CES Energy.
Diversification Opportunities for Fairfax Financial and CES Energy
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and CES is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and CES Energy Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CES Energy Solutions 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 CES Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CES Energy Solutions has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and CES Energy go up and down completely randomly.
Pair Corralation between Fairfax Financial and CES Energy
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.3 times less return on investment than CES Energy. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.74 times less risky than CES Energy. It trades about 0.17 of its potential returns per unit of risk. CES Energy Solutions is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 783.00 in CES Energy Solutions on August 28, 2024 and sell it today you would earn a total of 163.00 from holding CES Energy Solutions or generate 20.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. CES Energy Solutions
Performance |
| Timeline |
| Fairfax Financial |
| CES Energy Solutions |
Fairfax Financial and CES Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and CES Energy
The main advantage of trading using opposite Fairfax Financial and CES Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, CES Energy 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 CES Energy will offset losses from the drop in CES Energy's long position.| Fairfax Financial vs. Forstrong Global Income | Fairfax Financial vs. BMO Aggregate Bond | Fairfax Financial vs. Terreno Resources Corp | Fairfax Financial vs. iShares Canadian HYBrid |
| CES Energy vs. Secure Energy Services | CES Energy vs. Ensign Energy Services | CES Energy vs. Kelt Exploration | CES Energy vs. Trican Well Service |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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