Correlation Between Fairfax Financial and Linamar
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Linamar 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 Linamar 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 Linamar, you can compare the effects of market volatilities on Fairfax Financial and Linamar 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 Linamar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Linamar.
Diversification Opportunities for Fairfax Financial and Linamar
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Fairfax and Linamar is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Linamar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linamar 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 Linamar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linamar has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Linamar go up and down completely randomly.
Pair Corralation between Fairfax Financial and Linamar
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.06 times more return on investment than Linamar. However, Fairfax Financial is 1.06 times more volatile than Linamar. It trades about 0.19 of its potential returns per unit of risk. Linamar is currently generating about 0.01 per unit of risk. If you would invest 163,325 in Fairfax Financial Holdings on September 2, 2024 and sell it today you would earn a total of 35,305 from holding Fairfax Financial Holdings or generate 21.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Linamar
Performance |
| Timeline |
| Fairfax Financial |
| Linamar |
Fairfax Financial and Linamar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Linamar
The main advantage of trading using opposite Fairfax Financial and Linamar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Linamar 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 Linamar will offset losses from the drop in Linamar's long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
| Linamar vs. Martinrea International | Linamar vs. Magna International | Linamar vs. CCL Industries | Linamar vs. Stella Jones |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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