Correlation Between Fairfax Financial and Brookfield

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

Diversification Opportunities for Fairfax Financial and Brookfield

0.84

Correlation Coefficient

Fairfax Financial  Brookfield

Very poor diversification

The 3 months correlation between Fairfax and Brookfield is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield 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 Brookfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Brookfield go up and down completely randomly.

Pair Corralation between Fairfax Financial and Brookfield

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.1 times more return on investment than Brookfield. However, Fairfax Financial is 1.1 times more volatile than Brookfield. It trades about 0.21 of its potential returns per unit of risk. Brookfield is currently generating about 0.18 per unit of risk. If you would invest  1,816  in Fairfax Financial Holdings on October 7, 2024 and sell it today you would earn a total of  409.00  from holding Fairfax Financial Holdings or generate 22.52% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Brookfield

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.

Brookfield

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Brookfield

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

The idea behind Fairfax Financial Holdings and Brookfield 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.