Correlation Between National Bank and Fairfax Fin

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

By analyzing existing cross correlation between National Bank of and Fairfax Fin Hld, you can compare the effects of market volatilities on National Bank and Fairfax Fin 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 National Bank with a short position of Fairfax Fin. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Fairfax Fin.

Diversification Opportunities for National Bank and Fairfax Fin

0.86

Correlation Coefficient

National Bank  Fairfax Fin

Very poor diversification

The 3 months correlation between National and Fairfax is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Fairfax Fin Hld in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Fin Hld and National Bank 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 National Bank of are associated (or correlated) with Fairfax Fin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Fin Hld has no effect on the direction of National Bank i.e., National Bank and Fairfax Fin go up and down completely randomly.

Pair Corralation between National Bank and Fairfax Fin

Assuming the 90 days trading horizon National Bank of is expected to generate 1.35 times more return on investment than Fairfax Fin. However, National Bank is 1.35 times more volatile than Fairfax Fin Hld. It trades about 0.08 of its potential returns per unit of risk. Fairfax Fin Hld is currently generating about 0.09 per unit of risk. If you would invest  1,640  in National Bank of on October 11, 2024 and sell it today you would earn a total of  854.00  from holding National Bank of or generate 52.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.19%
Values	Daily Returns

National Bank of  vs.  Fairfax Fin Hld

National Bank

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Fairfax Fin Hld

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Fairfax Fin Hld has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Fairfax Fin

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

The idea behind National Bank of and Fairfax Fin Hld 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.