Correlation Between Fairfax Financial and Great-West Lifeco

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

Diversification Opportunities for Fairfax Financial and Great-West Lifeco

0.53

Correlation Coefficient

Fairfax Financial  Great-West Lifeco

Very weak diversification

The 3 months correlation between Fairfax and Great-West is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco 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 Great-West Lifeco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Great-West Lifeco go up and down completely randomly.

Pair Corralation between Fairfax Financial and Great-West Lifeco

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.36 times less return on investment than Great-West Lifeco. In addition to that, Fairfax Financial is 1.78 times more volatile than Great West Lifeco. It trades about 0.08 of its total potential returns per unit of risk. Great West Lifeco is currently generating about 0.2 per unit of volatility. If you would invest  2,105  in Great West Lifeco on December 2, 2024 and sell it today you would earn a total of  145.00  from holding Great West Lifeco or generate 6.89% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Great West Lifeco

Fairfax Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Great West Lifeco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Lifeco are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Great-West Lifeco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fairfax Financial and Great-West Lifeco

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

The idea behind Fairfax Financial Holdings and Great West Lifeco 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.