Correlation Between Fairfax Financial and Royal Bank
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Royal Bank 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 Royal Bank 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 Royal Bank of, you can compare the effects of market volatilities on Fairfax Financial and Royal Bank 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 Royal Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Royal Bank.
Diversification Opportunities for Fairfax Financial and Royal Bank
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fairfax and Royal is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Royal Bank go up and down completely randomly.
Pair Corralation between Fairfax Financial and Royal Bank
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.8 times more return on investment than Royal Bank. However, Fairfax Financial is 1.8 times more volatile than Royal Bank of. It trades about 0.12 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.12 per unit of risk. If you would invest 195,923 in Fairfax Financial Holdings on September 22, 2024 and sell it today you would earn a total of 3,873 from holding Fairfax Financial Holdings or generate 1.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fairfax Financial Holdings vs. Royal Bank of
Performance |
| Timeline |
| Fairfax Financial |
| Royal Bank |
Fairfax Financial and Royal Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fairfax Financial and Royal Bank
The main advantage of trading using opposite Fairfax Financial and Royal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, Royal Bank 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 Royal Bank will offset losses from the drop in Royal Bank's long position.| Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
| Royal Bank vs. Rocky Mountain Liquor | Royal Bank vs. Postmedia Network Canada | Royal Bank vs. Bip Investment Corp | Royal Bank vs. Thunderbird Entertainment Group |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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