Correlation Between North American and Helios Fairfax

Can any of the company-specific risk be diversified away by investing in both North American and Helios Fairfax 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 North American and Helios Fairfax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between North American Financial and Helios Fairfax Partners, you can compare the effects of market volatilities on North American and Helios Fairfax 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 North American with a short position of Helios Fairfax. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Helios Fairfax.

Diversification Opportunities for North American and Helios Fairfax

0.83

Correlation Coefficient

North American  Helios Fairfax

Very poor diversification

The 3 months correlation between North and Helios is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Helios Fairfax Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Helios Fairfax Partners and North American 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 North American Financial are associated (or correlated) with Helios Fairfax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Helios Fairfax Partners has no effect on the direction of North American i.e., North American and Helios Fairfax go up and down completely randomly.

Pair Corralation between North American and Helios Fairfax

Assuming the 90 days trading horizon North American Financial is expected to generate 0.46 times more return on investment than Helios Fairfax. However, North American Financial is 2.18 times less risky than Helios Fairfax. It trades about 0.33 of its potential returns per unit of risk. Helios Fairfax Partners is currently generating about 0.06 per unit of risk. If you would invest  553.00  in North American Financial on September 12, 2024 and sell it today you would earn a total of  174.00  from holding North American Financial or generate 31.46% return on investment over 90 days.

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

North American Financial  vs.  Helios Fairfax Partners

North American Financial

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Helios Fairfax Partners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Helios Fairfax Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Helios Fairfax may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with North American and Helios Fairfax

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

The idea behind North American Financial and Helios Fairfax Partners 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.