Correlation Between Fairfax Financial and Diversified Royalty
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Diversified Royalty 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 Diversified Royalty 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 Diversified Royalty Corp, you can compare the effects of market volatilities on Fairfax Financial and Diversified Royalty 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 Diversified Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Diversified Royalty.
Diversification Opportunities for Fairfax Financial and Diversified Royalty
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and Diversified is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Diversified Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Royalty Corp 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 Diversified Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Royalty Corp has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Diversified Royalty go up and down completely randomly.
Pair Corralation between Fairfax Financial and Diversified Royalty
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 3.37 times more return on investment than Diversified Royalty. However, Fairfax Financial is 3.37 times more volatile than Diversified Royalty Corp. It trades about 0.24 of its potential returns per unit of risk. Diversified Royalty Corp is currently generating about 0.05 per unit of risk. If you would invest 174,999 in Fairfax Financial Holdings on August 28, 2024 and sell it today you would earn a total of 20,510 from holding Fairfax Financial Holdings or generate 11.72% 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. Diversified Royalty Corp
Performance |
| Timeline |
| Fairfax Financial |
| Diversified Royalty Corp |
Fairfax Financial and Diversified Royalty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Diversified Royalty
The main advantage of trading using opposite Fairfax Financial and Diversified Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Diversified Royalty 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 Diversified Royalty will offset losses from the drop in Diversified Royalty's long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
| Diversified Royalty vs. True North Commercial | Diversified Royalty vs. Chemtrade Logistics Income | Diversified Royalty vs. Pizza Pizza Royalty | Diversified Royalty vs. Exchange Income |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
Other Complementary Tools
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum |