Correlation Between Fairfax Financial and North American
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and North American 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 North American 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 North American Financial, you can compare the effects of market volatilities on Fairfax Financial and North American 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 North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and North American.
Diversification Opportunities for Fairfax Financial and North American
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and North is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and North American Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Financial 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Financial has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and North American go up and down completely randomly.
Pair Corralation between Fairfax Financial and North American
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 3.08 times less return on investment than North American. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.61 times less risky than North American. It trades about 0.17 of its potential returns per unit of risk. North American Financial is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 567.00 in North American Financial on September 2, 2024 and sell it today you would earn a total of 185.00 from holding North American Financial or generate 32.63% 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. North American Financial
Performance |
| Timeline |
| Fairfax Financial |
| North American Financial |
Fairfax Financial and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and North American
The main advantage of trading using opposite Fairfax Financial and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.| Fairfax Financial vs. Endeavour Silver Corp | Fairfax Financial vs. Monument Mining Limited | Fairfax Financial vs. TGS Esports | Fairfax Financial vs. Perseus Mining |
| North American vs. Dividend Growth Split | North American vs. Dividend 15 Split | North American vs. Financial 15 Split | North American vs. Dividend 15 Split |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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