Correlation Between Fairfax Financial and Canadian Utilities
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Canadian Utilities 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 Canadian Utilities 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 Canadian Utilities Limited, you can compare the effects of market volatilities on Fairfax Financial and Canadian Utilities 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 Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Canadian Utilities.
Diversification Opportunities for Fairfax Financial and Canadian Utilities
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Fairfax and Canadian is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities 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 Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Canadian Utilities go up and down completely randomly.
Pair Corralation between Fairfax Financial and Canadian Utilities
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.75 times less return on investment than Canadian Utilities. But when comparing it to its historical volatility, Fairfax Financial Holdings is 2.43 times less risky than Canadian Utilities. It trades about 0.24 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,475 in Canadian Utilities Limited on September 4, 2024 and sell it today you would earn a total of 125.00 from holding Canadian Utilities Limited or generate 3.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Canadian Utilities Limited
Performance |
| Timeline |
| Fairfax Financial |
| Canadian Utilities |
Fairfax Financial and Canadian Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Canadian Utilities
The main advantage of trading using opposite Fairfax Financial and Canadian Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Canadian Utilities 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 Canadian Utilities will offset losses from the drop in Canadian Utilities' long position.| Fairfax Financial vs. Apple Inc CDR | Fairfax Financial vs. Microsoft Corp CDR | Fairfax Financial vs. Amazon CDR | Fairfax Financial vs. Alphabet Inc CDR |
| Canadian Utilities vs. Fortis Inc | Canadian Utilities vs. Emera Inc | Canadian Utilities vs. Algonquin Power Utilities | Canadian Utilities vs. ATCO |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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