Correlation Between Fairfax Financial and Bank of Montreal
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Bank of Montreal 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 Bank of Montreal 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 Bank of Montreal, you can compare the effects of market volatilities on Fairfax Financial and Bank of Montreal 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 Bank of Montreal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Bank of Montreal.
Diversification Opportunities for Fairfax Financial and Bank of Montreal
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Bank is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal 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 Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Bank of Montreal go up and down completely randomly.
Pair Corralation between Fairfax Financial and Bank of Montreal
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.79 times more return on investment than Bank of Montreal. However, Fairfax Financial is 1.79 times more volatile than Bank of Montreal. It trades about 0.14 of its potential returns per unit of risk. Bank of Montreal is currently generating about 0.16 per unit of risk. If you would invest 98,686 in Fairfax Financial Holdings on September 12, 2024 and sell it today you would earn a total of 101,119 from holding Fairfax Financial Holdings or generate 102.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.15% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Bank of Montreal
Performance |
| Timeline |
| Fairfax Financial |
| Bank of Montreal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Fairfax Financial and Bank of Montreal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Bank of Montreal
The main advantage of trading using opposite Fairfax Financial and Bank of Montreal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Bank of Montreal 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 Bank of Montreal will offset losses from the drop in Bank of Montreal's long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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