Correlation Between Fairfax Financial and Maple Leaf

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

Diversification Opportunities for Fairfax Financial and Maple Leaf

0.77

Correlation Coefficient

Fairfax Financial  Maple Leaf

Poor diversification

The 3 months correlation between Fairfax and Maple is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Maple Leaf Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maple Leaf Foods 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 Maple Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maple Leaf Foods has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Maple Leaf go up and down completely randomly.

Pair Corralation between Fairfax Financial and Maple Leaf

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 20.54 times less return on investment than Maple Leaf. But when comparing it to its historical volatility, Fairfax Financial Holdings is 10.6 times less risky than Maple Leaf. It trades about 0.09 of its potential returns per unit of risk. Maple Leaf Foods is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,015  in Maple Leaf Foods on December 31, 2024 and sell it today you would earn a total of  477.00  from holding Maple Leaf Foods or generate 23.67% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Maple Leaf Foods

Fairfax Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Fairfax Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Maple Leaf Foods

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Maple Leaf Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Maple Leaf displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Maple Leaf

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

The idea behind Fairfax Financial Holdings and Maple Leaf 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.