Correlation Between Fairfax Fin and Brookfield Renewable

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

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

Diversification Opportunities for Fairfax Fin and Brookfield Renewable

-0.38

Correlation Coefficient

Fairfax Fin  Brookfield Renewable

Very good diversification

The 3 months correlation between Fairfax and Brookfield is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and Fairfax Fin 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 Fairfax Fin Hld are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Fairfax Fin and Brookfield Renewable

Assuming the 90 days trading horizon Fairfax Fin Hld is expected to generate 0.45 times more return on investment than Brookfield Renewable. However, Fairfax Fin Hld is 2.21 times less risky than Brookfield Renewable. It trades about 0.21 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about -0.02 per unit of risk. If you would invest  2,230  in Fairfax Fin Hld on September 13, 2024 and sell it today you would earn a total of  294.00  from holding Fairfax Fin Hld or generate 13.18% return on investment over 90 days.

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

Fairfax Fin Hld  vs.  Brookfield Renewable Partners

Fairfax Fin Hld

Risk-Adjusted Performance

16 of 100

Solid

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

Brookfield Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fairfax Fin and Brookfield Renewable

The main advantage of trading using opposite Fairfax Fin and Brookfield Renewable positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Fin position performs unexpectedly, Brookfield Renewable 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 Brookfield Renewable will offset losses from the drop in Brookfield Renewable's long position.

The idea behind Fairfax Fin Hld and Brookfield Renewable Partners 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.