Correlation Between Bip Investment and Fairfax Financial

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

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

Diversification Opportunities for Bip Investment and Fairfax Financial

0.48

Correlation Coefficient

Bip Investment  Fairfax Financial

Very weak diversification

The 3 months correlation between Bip and Fairfax is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Bip Investment Corp and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Bip Investment 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 Bip Investment Corp 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 Bip Investment i.e., Bip Investment and Fairfax Financial go up and down completely randomly.

Pair Corralation between Bip Investment and Fairfax Financial

Assuming the 90 days trading horizon Bip Investment is expected to generate 6.96 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, Bip Investment Corp is 2.21 times less risky than Fairfax Financial. It trades about 0.07 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,816  in Fairfax Financial Holdings on October 6, 2024 and sell it today you would earn a total of  399.00  from holding Fairfax Financial Holdings or generate 21.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Bip Investment Corp  vs.  Fairfax Financial Holdings

Bip Investment Corp

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Bip Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking signals, Bip Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fairfax Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bip Investment and Fairfax Financial

The main advantage of trading using opposite Bip Investment and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bip Investment 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 Bip Investment Corp 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 Global Correlations module to find global opportunities by holding instruments from different markets.