Correlation Between Air Canada and Fairfax Financial

Can any of the company-specific risk be diversified away by investing in both Air Canada 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 Air Canada and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Canada and Fairfax Financial Holdings, you can compare the effects of market volatilities on Air Canada 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 Air Canada with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and Fairfax Financial.

Diversification Opportunities for Air Canada and Fairfax Financial

-0.6

Correlation Coefficient

Air Canada  Fairfax Financial

Excellent diversification

The 3 months correlation between Air and Fairfax is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Air Canada 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 Air Canada 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 Air Canada i.e., Air Canada and Fairfax Financial go up and down completely randomly.

Pair Corralation between Air Canada and Fairfax Financial

Assuming the 90 days horizon Air Canada is expected to under-perform the Fairfax Financial. But the stock apears to be less risky and, when comparing its historical volatility, Air Canada is 1.19 times less risky than Fairfax Financial. The stock trades about -0.39 of its potential returns per unit of risk. The Fairfax Financial Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,222  in Fairfax Financial Holdings on December 30, 2024 and sell it today you would earn a total of  278.00  from holding Fairfax Financial Holdings or generate 12.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Air Canada  vs.  Fairfax Financial Holdings

Air Canada

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Fairfax Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Canada and Fairfax Financial

The main advantage of trading using opposite Air Canada and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada 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 Air Canada 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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.