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 Construction 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

0.3

Correlation Coefficient

North American  Helios Fairfax

Weak diversification

The 3 months correlation between North and Helios is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 Construction 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 Construction is expected to under-perform the Helios Fairfax. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 2.21 times less risky than Helios Fairfax. The stock trades about -0.21 of its potential returns per unit of risk. The Helios Fairfax Partners is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Helios Fairfax Partners on December 23, 2024 and sell it today you would lose (40.00) from holding Helios Fairfax Partners or give up 14.81% of portfolio value over 90 days.

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

North American Construction  vs.  Helios Fairfax Partners

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Helios Fairfax Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Helios Fairfax Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Construction 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.