Correlation Between TMX Group and Fairfax Financial

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

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

Diversification Opportunities for TMX Group and Fairfax Financial

0.59

Correlation Coefficient

TMX Group  Fairfax Financial

Very weak diversification

The 3 months correlation between TMX and Fairfax is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and TMX Group 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 TMX Group Limited 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 TMX Group i.e., TMX Group and Fairfax Financial go up and down completely randomly.

Pair Corralation between TMX Group and Fairfax Financial

Given the investment horizon of 90 days TMX Group Limited is expected to generate 0.87 times more return on investment than Fairfax Financial. However, TMX Group Limited is 1.15 times less risky than Fairfax Financial. It trades about 0.13 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.1 per unit of risk. If you would invest  2,805  in TMX Group Limited on September 30, 2024 and sell it today you would earn a total of  1,643  from holding TMX Group Limited or generate 58.57% return on investment over 90 days.

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

TMX Group Limited  vs.  Fairfax Financial Holdings

TMX Group Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TMX Group Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, TMX Group is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Fairfax Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TMX Group and Fairfax Financial

The main advantage of trading using opposite TMX Group and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMX Group 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 TMX Group Limited 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.