Correlation Between Enbridge Pref and Fairfax Financial

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

By analyzing existing cross correlation between Enbridge Pref 15 and Fairfax Financial Holdings, you can compare the effects of market volatilities on Enbridge Pref 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 Enbridge Pref with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enbridge Pref and Fairfax Financial.

Diversification Opportunities for Enbridge Pref and Fairfax Financial

0.63

Correlation Coefficient

Enbridge Pref  Fairfax Financial

Poor diversification

The 3 months correlation between Enbridge and Fairfax is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref 15 and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Enbridge Pref 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 Enbridge Pref 15 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 Enbridge Pref i.e., Enbridge Pref and Fairfax Financial go up and down completely randomly.

Pair Corralation between Enbridge Pref and Fairfax Financial

Assuming the 90 days trading horizon Enbridge Pref 15 is expected to generate 0.68 times more return on investment than Fairfax Financial. However, Enbridge Pref 15 is 1.47 times less risky than Fairfax Financial. It trades about 0.31 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.19 per unit of risk. If you would invest  1,771  in Enbridge Pref 15 on October 26, 2024 and sell it today you would earn a total of  210.00  from holding Enbridge Pref 15 or generate 11.86% return on investment over 90 days.

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

Enbridge Pref 15  vs.  Fairfax Financial Holdings

Enbridge Pref 15

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Enbridge Pref 15 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Enbridge Pref may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Fairfax Financial

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Enbridge Pref and Fairfax Financial

The main advantage of trading using opposite Enbridge Pref and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enbridge Pref 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 Enbridge Pref 15 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..