Correlation Between Fairfax Financial and Molson Coors

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

Diversification Opportunities for Fairfax Financial and Molson Coors

0.18

Correlation Coefficient

Fairfax Financial  Molson Coors

Average diversification

The 3 months correlation between Fairfax and Molson is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Molson Coors Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Molson Coors Canada 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 Molson Coors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Molson Coors Canada has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Molson Coors go up and down completely randomly.

Pair Corralation between Fairfax Financial and Molson Coors

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.43 times less return on investment than Molson Coors. But when comparing it to its historical volatility, Fairfax Financial Holdings is 13.18 times less risky than Molson Coors. It trades about 0.14 of its potential returns per unit of risk. Molson Coors Canada is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,285  in Molson Coors Canada on December 26, 2024 and sell it today you would earn a total of  18.00  from holding Molson Coors Canada or generate 0.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	73.77%
Values	Daily Returns

Fairfax Financial Holdings  vs.  Molson Coors Canada

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 10 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Molson Coors Canada

Risk-Adjusted Performance

Weak

Over the last 90 days Molson Coors Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Molson Coors is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fairfax Financial and Molson Coors

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

The idea behind Fairfax Financial Holdings and Molson Coors Canada 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.