Correlation Between National Bank and Fairfax Fin
Can any of the company-specific risk be diversified away by investing in both National Bank and Fairfax Fin 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 National Bank and Fairfax Fin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bank of and Fairfax Fin Hld, you can compare the effects of market volatilities on National Bank and Fairfax Fin 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 National Bank with a short position of Fairfax Fin. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Fairfax Fin.
Diversification Opportunities for National Bank and Fairfax Fin
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and Fairfax is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Fairfax Fin Hld in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Fin Hld and National Bank 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 National Bank of are associated (or correlated) with Fairfax Fin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Fin Hld has no effect on the direction of National Bank i.e., National Bank and Fairfax Fin go up and down completely randomly.
Pair Corralation between National Bank and Fairfax Fin
Assuming the 90 days horizon National Bank of is expected to generate 1.24 times more return on investment than Fairfax Fin. However, National Bank is 1.24 times more volatile than Fairfax Fin Hld. It trades about 0.12 of its potential returns per unit of risk. Fairfax Fin Hld is currently generating about 0.14 per unit of risk. If you would invest 8,971 in National Bank of on September 1, 2024 and sell it today you would earn a total of 4,900 from holding National Bank of or generate 54.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank of vs. Fairfax Fin Hld
Performance |
| Timeline |
| National Bank |
| Fairfax Fin Hld |
National Bank and Fairfax Fin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and Fairfax Fin
The main advantage of trading using opposite National Bank and Fairfax Fin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank position performs unexpectedly, Fairfax Fin 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 Fin will offset losses from the drop in Fairfax Fin's long position.| National Bank vs. Canadian Imperial Bank | National Bank vs. Bank of Montreal | National Bank vs. Royal Bank of | National Bank vs. Bank of Nova |
| Fairfax Fin vs. AGF Management Limited | Fairfax Fin vs. Guru Organic Energy | Fairfax Fin vs. Enerev5 Metals | Fairfax Fin vs. Computer Modelling 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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