Correlation Between Fairfax Financial and Toronto Dominion
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Toronto Dominion 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 Toronto Dominion 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 Toronto Dominion Bank, you can compare the effects of market volatilities on Fairfax Financial and Toronto Dominion 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 Toronto Dominion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Toronto Dominion.
Diversification Opportunities for Fairfax Financial and Toronto Dominion
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Toronto is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Toronto Dominion Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toronto Dominion Bank 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 Toronto Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toronto Dominion Bank has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Toronto Dominion go up and down completely randomly.
Pair Corralation between Fairfax Financial and Toronto Dominion
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 9.52 times more return on investment than Toronto Dominion. However, Fairfax Financial is 9.52 times more volatile than Toronto Dominion Bank. It trades about 0.39 of its potential returns per unit of risk. Toronto Dominion Bank is currently generating about 0.3 per unit of risk. If you would invest 1,900 in Fairfax Financial Holdings on September 13, 2024 and sell it today you would earn a total of 400.00 from holding Fairfax Financial Holdings or generate 21.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Toronto Dominion Bank
Performance |
| Timeline |
| Fairfax Financial |
| Toronto Dominion Bank |
Fairfax Financial and Toronto Dominion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Toronto Dominion
The main advantage of trading using opposite Fairfax Financial and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Toronto Dominion 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 Toronto Dominion will offset losses from the drop in Toronto Dominion's long position.The idea behind Fairfax Financial Holdings and Toronto Dominion Bank 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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