Correlation Between Fairfax Fin and Enbridge Pref

Can any of the company-specific risk be diversified away by investing in both Fairfax Fin and Enbridge Pref 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 Enbridge Pref 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 Enbridge Pref 1, you can compare the effects of market volatilities on Fairfax Fin and Enbridge Pref 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 Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Fin and Enbridge Pref.

Diversification Opportunities for Fairfax Fin and Enbridge Pref

0.83

Correlation Coefficient

Fairfax Fin  Enbridge Pref

Very poor diversification

The 3 months correlation between Fairfax and Enbridge is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and Enbridge Pref 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 1 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 Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 1 has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and Enbridge Pref go up and down completely randomly.

Pair Corralation between Fairfax Fin and Enbridge Pref

Assuming the 90 days trading horizon Fairfax Fin Hld is expected to generate 1.16 times more return on investment than Enbridge Pref. However, Fairfax Fin is 1.16 times more volatile than Enbridge Pref 1. It trades about 0.1 of its potential returns per unit of risk. Enbridge Pref 1 is currently generating about 0.07 per unit of risk. If you would invest  1,699  in Fairfax Fin Hld on September 30, 2024 and sell it today you would earn a total of  801.00  from holding Fairfax Fin Hld or generate 47.15% return on investment over 90 days.

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

Fairfax Fin Hld  vs.  Enbridge Pref 1

Fairfax Fin Hld

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Fin Hld are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

Enbridge Pref 1

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 1 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Enbridge Pref is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fairfax Fin and Enbridge Pref

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

The idea behind Fairfax Fin Hld and Enbridge Pref 1 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.