Correlation Between Fairfax Financial and HR Real
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and HR Real 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 HR Real 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 HR Real Estate, you can compare the effects of market volatilities on Fairfax Financial and HR Real 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 HR Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and HR Real.
Diversification Opportunities for Fairfax Financial and HR Real
-0.88 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Fairfax and HR-UN is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and HR Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HR Real Estate 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 HR Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HR Real Estate has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and HR Real go up and down completely randomly.
Pair Corralation between Fairfax Financial and HR Real
Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.81 times more return on investment than HR Real. However, Fairfax Financial Holdings is 1.23 times less risky than HR Real. It trades about 0.12 of its potential returns per unit of risk. HR Real Estate is currently generating about -0.18 per unit of risk. If you would invest 2,180 in Fairfax Financial Holdings on September 25, 2024 and sell it today you would earn a total of 61.00 from holding Fairfax Financial Holdings or generate 2.8% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Significant |
Accuracy | 95.45% |
Values | Daily Returns |
Fairfax Financial Holdings vs. HR Real Estate
Performance |
Timeline |
Fairfax Financial |
HR Real Estate |
Fairfax Financial and HR Real Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Fairfax Financial and HR Real
The main advantage of trading using opposite Fairfax Financial and HR Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, HR Real 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 HR Real will offset losses from the drop in HR Real's long position.The idea behind Fairfax Financial Holdings and HR Real Estate 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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Check out your portfolio center.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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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