Correlation Between BMO Aggregate and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate 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 BMO Aggregate and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Aggregate Bond and Fairfax Financial Holdings, you can compare the effects of market volatilities on BMO Aggregate 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 BMO Aggregate with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and Fairfax Financial.
Diversification Opportunities for BMO Aggregate and Fairfax Financial
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and Fairfax is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and BMO Aggregate 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 BMO Aggregate Bond 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 BMO Aggregate i.e., BMO Aggregate and Fairfax Financial go up and down completely randomly.
Pair Corralation between BMO Aggregate and Fairfax Financial
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 29.09 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, BMO Aggregate Bond is 9.36 times less risky than Fairfax Financial. It trades about 0.1 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 1,851 in Fairfax Financial Holdings on August 28, 2024 and sell it today you would earn a total of 279.00 from holding Fairfax Financial Holdings or generate 15.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. Fairfax Financial Holdings
Performance |
| Timeline |
| BMO Aggregate Bond |
| Fairfax Financial |
BMO Aggregate and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and Fairfax Financial
The main advantage of trading using opposite BMO Aggregate and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate 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.| BMO Aggregate vs. BMO Short Term Bond | BMO Aggregate vs. BMO Canadian Bank | BMO Aggregate vs. BMO Aggregate Bond | BMO Aggregate vs. BMO Balanced ETF |
| Fairfax Financial vs. Forstrong Global Income | Fairfax Financial vs. BMO Aggregate Bond | Fairfax Financial vs. Terreno Resources Corp | Fairfax Financial vs. iShares Canadian HYBrid |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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