Correlation Between Fairfax Financial and TMX Group
Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and TMX Group 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 TMX Group 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 TMX Group Limited, you can compare the effects of market volatilities on Fairfax Financial and TMX Group 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 TMX Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and TMX Group.
Diversification Opportunities for Fairfax Financial and TMX Group
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fairfax and TMX is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and TMX Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMX Group Limited 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 TMX Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMX Group Limited has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and TMX Group go up and down completely randomly.
Pair Corralation between Fairfax Financial and TMX Group
Assuming the 90 days trading horizon Fairfax Financial is expected to generate 3.17 times less return on investment than TMX Group. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.38 times less risky than TMX Group. It trades about 0.08 of its potential returns per unit of risk. TMX Group Limited is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 4,419 in TMX Group Limited on December 2, 2024 and sell it today you would earn a total of 722.00 from holding TMX Group Limited or generate 16.34% 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. TMX Group Limited
Performance |
Timeline |
Fairfax Financial |
TMX Group Limited |
Fairfax Financial and TMX Group Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Fairfax Financial and TMX Group
The main advantage of trading using opposite Fairfax Financial and TMX Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fairfax Financial position performs unexpectedly, TMX Group 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 TMX Group will offset losses from the drop in TMX Group's long position.Fairfax Financial vs. Intact Financial | Fairfax Financial vs. iA Financial | Fairfax Financial vs. TMX Group Limited | Fairfax Financial vs. Onex Corp |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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