Correlation Between Fairfax Financial and Premium Brands
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Premium Brands 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 Premium Brands 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 Premium Brands Holdings, you can compare the effects of market volatilities on Fairfax Financial and Premium Brands 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 Premium Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Premium Brands.
Diversification Opportunities for Fairfax Financial and Premium Brands
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Fairfax and Premium is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Premium Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Brands Holdings 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 Premium Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Brands Holdings has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Premium Brands go up and down completely randomly.
Pair Corralation between Fairfax Financial and Premium Brands
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.3 times more return on investment than Premium Brands. However, Fairfax Financial Holdings is 3.36 times less risky than Premium Brands. It trades about 0.69 of its potential returns per unit of risk. Premium Brands Holdings 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 Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Premium Brands Holdings
Performance |
| Timeline |
| Fairfax Financial |
| Premium Brands Holdings |
Fairfax Financial and Premium Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Premium Brands
The main advantage of trading using opposite Fairfax Financial and Premium Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Premium Brands 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 Premium Brands will offset losses from the drop in Premium Brands' long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
| Premium Brands vs. CCL Industries | Premium Brands vs. North West | Premium Brands vs. Maple Leaf Foods | Premium Brands vs. FirstService Corp |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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