Correlation Between Fairfax Financial and Great West

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

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

Diversification Opportunities for Fairfax Financial and Great West

-0.85

Correlation Coefficient

Fairfax Financial  Great West

Pay attention - limited upside

The 3 months correlation between Fairfax and Great is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco and Fairfax Financial 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 Financial Holdings are associated (or correlated) with Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Great West go up and down completely randomly.

Pair Corralation between Fairfax Financial and Great West

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 2.21 times more return on investment than Great West. However, Fairfax Financial is 2.21 times more volatile than Great West Lifeco. It trades about 0.3 of its potential returns per unit of risk. Great West Lifeco is currently generating about 0.15 per unit of risk. If you would invest  2,350  in Fairfax Financial Holdings on September 13, 2024 and sell it today you would earn a total of  195.00  from holding Fairfax Financial Holdings or generate 8.3% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Great West Lifeco

Fairfax Financial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Great West Lifeco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great West Lifeco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Great West 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 Financial and Great West

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

The idea behind Fairfax Financial Holdings and Great West Lifeco 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.