Correlation Between Fairfax Financial and ATCO
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and ATCO 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 ATCO 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 ATCO, you can compare the effects of market volatilities on Fairfax Financial and ATCO 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 ATCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and ATCO.
Diversification Opportunities for Fairfax Financial and ATCO
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and ATCO is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and ATCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATCO 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 ATCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATCO has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and ATCO go up and down completely randomly.
Pair Corralation between Fairfax Financial and ATCO
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.36 times more return on investment than ATCO. However, Fairfax Financial Holdings is 2.77 times less risky than ATCO. It trades about 0.69 of its potential returns per unit of risk. ATCO is currently generating about 0.18 per unit of risk. If you would invest 181,522 in Fairfax Financial Holdings on September 3, 2024 and sell it today you would earn a total of 17,108 from holding Fairfax Financial Holdings or generate 9.42% 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. ATCO
Performance |
| Timeline |
| Fairfax Financial |
| ATCO |
Fairfax Financial and ATCO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and ATCO
The main advantage of trading using opposite Fairfax Financial and ATCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, ATCO 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 ATCO will offset losses from the drop in ATCO's long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
| ATCO vs. Element Fleet Management | ATCO vs. Storage Vault Canada | ATCO vs. Quorum Information Technologies | ATCO vs. AGF Management Limited |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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