Correlation Between Fairfax Fin and High Liner

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

Diversification Opportunities for Fairfax Fin and High Liner

0.93

Correlation Coefficient

Fairfax Fin  High Liner

Almost no diversification

The 3 months correlation between Fairfax and High is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and High Liner Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Liner Foods 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 High Liner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Liner Foods has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and High Liner go up and down completely randomly.

Pair Corralation between Fairfax Fin and High Liner

Assuming the 90 days trading horizon Fairfax Fin Hld is expected to generate 1.2 times more return on investment than High Liner. However, Fairfax Fin is 1.2 times more volatile than High Liner Foods. It trades about 0.19 of its potential returns per unit of risk. High Liner Foods is currently generating about 0.2 per unit of risk. If you would invest  1,748  in Fairfax Fin Hld on September 15, 2024 and sell it today you would earn a total of  421.00  from holding Fairfax Fin Hld or generate 24.08% return on investment over 90 days.

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

Fairfax Fin Hld  vs.  High Liner Foods

Fairfax Fin Hld

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Fin Hld are ranked lower than 14 (%) 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.

High Liner Foods

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in High Liner Foods are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, High Liner displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Fin and High Liner

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

The idea behind Fairfax Fin Hld and High Liner Foods 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.