Correlation Between E L and Fairfax Fin

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

By analyzing existing cross correlation between E L Financial 3 and Fairfax Fin Hld, you can compare the effects of market volatilities on E L 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 E L with a short position of Fairfax Fin. Check out your portfolio center. Please also check ongoing floating volatility patterns of E L and Fairfax Fin.

Diversification Opportunities for E L and Fairfax Fin

-0.52

Correlation Coefficient

E L  Fairfax Fin

Excellent diversification

The 3 months correlation between ELF-PH and Fairfax is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial 3 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 E L 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 E L Financial 3 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 E L i.e., E L and Fairfax Fin go up and down completely randomly.

Pair Corralation between E L and Fairfax Fin

Assuming the 90 days trading horizon E L Financial 3 is expected to under-perform the Fairfax Fin. But the preferred stock apears to be less risky and, when comparing its historical volatility, E L Financial 3 is 3.66 times less risky than Fairfax Fin. The preferred stock trades about -0.03 of its potential returns per unit of risk. The Fairfax Fin Hld is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,802  in Fairfax Fin Hld on September 3, 2024 and sell it today you would earn a total of  340.00  from holding Fairfax Fin Hld or generate 18.87% return on investment over 90 days.

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

E L Financial 3  vs.  Fairfax Fin Hld

E L Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E L Financial 3 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, E L is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fairfax Fin Hld

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Fin Hld are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with E L and Fairfax Fin

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

The idea behind E L Financial 3 and Fairfax Fin Hld 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.