Correlation Between IShares Canadian and Fairfax Financial

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

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

Diversification Opportunities for IShares Canadian and Fairfax Financial

0.68

Correlation Coefficient

IShares Canadian  Fairfax Financial

Poor diversification

The 3 months correlation between IShares and Fairfax is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian HYBrid and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and IShares Canadian 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 iShares Canadian HYBrid 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 IShares Canadian i.e., IShares Canadian and Fairfax Financial go up and down completely randomly.

Pair Corralation between IShares Canadian and Fairfax Financial

Assuming the 90 days trading horizon iShares Canadian HYBrid is expected to generate 0.51 times more return on investment than Fairfax Financial. However, iShares Canadian HYBrid is 1.97 times less risky than Fairfax Financial. It trades about 0.19 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.09 per unit of risk. If you would invest  1,926  in iShares Canadian HYBrid on November 20, 2024 and sell it today you would earn a total of  68.00  from holding iShares Canadian HYBrid or generate 3.53% return on investment over 90 days.

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

iShares Canadian HYBrid  vs.  Fairfax Financial Holdings

iShares Canadian HYBrid

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fairfax Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and Fairfax Financial

The main advantage of trading using opposite IShares Canadian and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Canadian 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 iShares Canadian HYBrid 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 Global Correlations module to find global opportunities by holding instruments from different markets.