Correlation Between Maple Leaf and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Maple Leaf and Fairfax Financial 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 Maple Leaf and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Maple Leaf Foods and Fairfax Financial Holdings, you can compare the effects of market volatilities on Maple Leaf and Fairfax Financial 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 Maple Leaf with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maple Leaf and Fairfax Financial.
Diversification Opportunities for Maple Leaf and Fairfax Financial
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Maple and Fairfax is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Maple Leaf i.e., Maple Leaf and Fairfax Financial go up and down completely randomly.
Pair Corralation between Maple Leaf and Fairfax Financial
Assuming the 90 days trading horizon Maple Leaf Foods is expected to under-perform the Fairfax Financial. In addition to that, Maple Leaf is 1.14 times more volatile than Fairfax Financial Holdings. It trades about -0.4 of its total potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.13 per unit of volatility. If you would invest 2,130 in Fairfax Financial Holdings on September 25, 2024 and sell it today you would earn a total of 70.00 from holding Fairfax Financial Holdings or generate 3.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Maple Leaf Foods vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Maple Leaf Foods |
| Fairfax Financial |
Maple Leaf and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Maple Leaf and Fairfax Financial
The main advantage of trading using opposite Maple Leaf and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maple Leaf position performs unexpectedly, Fairfax Financial 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 Fairfax Financial will offset losses from the drop in Fairfax Financial's long position.The idea behind Maple Leaf Foods and Fairfax Financial Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Fairfax Financial vs. Canso Credit Trust | Fairfax Financial vs. Canadian Imperial Bank | Fairfax Financial vs. Maple Leaf Foods | Fairfax Financial vs. Leveljump Healthcare 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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