Correlation Between Fairfax Financial and Extendicare
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Extendicare 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 Extendicare 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 Extendicare, you can compare the effects of market volatilities on Fairfax Financial and Extendicare 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 Extendicare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Extendicare.
Diversification Opportunities for Fairfax Financial and Extendicare
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Extendicare is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Extendicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extendicare 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 Extendicare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extendicare has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Extendicare go up and down completely randomly.
Pair Corralation between Fairfax Financial and Extendicare
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 5.63 times less return on investment than Extendicare. But when comparing it to its historical volatility, Fairfax Financial Holdings is 2.41 times less risky than Extendicare. It trades about 0.06 of its potential returns per unit of risk. Extendicare is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 241.00 in Extendicare on November 2, 2024 and sell it today you would earn a total of 802.00 from holding Extendicare or generate 332.78% 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. Extendicare
Performance |
| Timeline |
| Fairfax Financial |
| Extendicare |
Fairfax Financial and Extendicare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Extendicare
The main advantage of trading using opposite Fairfax Financial and Extendicare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Extendicare 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 Extendicare will offset losses from the drop in Extendicare's long position.| Fairfax Financial vs. Datable Technology Corp | Fairfax Financial vs. Maple Leaf Foods | Fairfax Financial vs. Nicola Mining | Fairfax Financial vs. XXIX Metal Corp |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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