Correlation Between Scandium Canada and Fairfax Financial

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

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

Diversification Opportunities for Scandium Canada and Fairfax Financial

0.16

Correlation Coefficient

Scandium Canada  Fairfax Financial

Average diversification

The 3 months correlation between Scandium and Fairfax is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Scandium Canada and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Scandium Canada 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 Scandium Canada are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Scandium Canada i.e., Scandium Canada and Fairfax Financial go up and down completely randomly.

Pair Corralation between Scandium Canada and Fairfax Financial

Assuming the 90 days horizon Scandium Canada is expected to generate 9.31 times more return on investment than Fairfax Financial. However, Scandium Canada is 9.31 times more volatile than Fairfax Financial Holdings. It trades about 0.09 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.05 per unit of risk. If you would invest  1.50  in Scandium Canada on December 30, 2024 and sell it today you would earn a total of  0.50  from holding Scandium Canada or generate 33.33% return on investment over 90 days.

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

Scandium Canada  vs.  Fairfax Financial Holdings

Scandium Canada

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scandium Canada are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Scandium Canada showed solid returns over the last few months and may actually be approaching a breakup point.

Fairfax Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 3 (%) 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.

Pair Trading with Scandium Canada and Fairfax Financial

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

The idea behind Scandium Canada and Fairfax Financial Holdings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.