Correlation Between Fairfax Financial and Emera Pref

Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Emera 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 Financial and Emera Pref 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 Emera Pref A, you can compare the effects of market volatilities on Fairfax Financial and Emera 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 Financial with a short position of Emera Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Emera Pref.

Diversification Opportunities for Fairfax Financial and Emera Pref

0.92

Correlation Coefficient

Fairfax Financial  Emera Pref

Almost no diversification

The 3 months correlation between Fairfax and Emera is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Emera Pref A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emera Pref A 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 Emera Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emera Pref A has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Emera Pref go up and down completely randomly.

Pair Corralation between Fairfax Financial and Emera Pref

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 2.61 times more return on investment than Emera Pref. However, Fairfax Financial is 2.61 times more volatile than Emera Pref A. It trades about 0.21 of its potential returns per unit of risk. Emera Pref A is currently generating about 0.24 per unit of risk. If you would invest  1,723  in Fairfax Financial Holdings on October 12, 2024 and sell it today you would earn a total of  497.00  from holding Fairfax Financial Holdings or generate 28.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Emera Pref A

Fairfax Financial

Risk-Adjusted Performance

16 of 100

Solid

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

Emera Pref A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emera Pref A are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Emera Pref may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fairfax Financial and Emera Pref

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

The idea behind Fairfax Financial Holdings and Emera Pref A 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.