Correlation Between Fairfax Financial and Canadian Apartment

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

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

Diversification Opportunities for Fairfax Financial and Canadian Apartment

-0.48

Correlation Coefficient

Fairfax Financial  Canadian Apartment

Very good diversification

The 3 months correlation between Fairfax and Canadian is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Canadian Apartment Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Apartment and Fairfax Financial 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 Fairfax Financial Holdings are associated (or correlated) with Canadian Apartment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Apartment has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Canadian Apartment go up and down completely randomly.

Pair Corralation between Fairfax Financial and Canadian Apartment

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 0.57 times more return on investment than Canadian Apartment. However, Fairfax Financial Holdings is 1.75 times less risky than Canadian Apartment. It trades about 0.09 of its potential returns per unit of risk. Canadian Apartment Properties is currently generating about -0.07 per unit of risk. If you would invest  1,836  in Fairfax Financial Holdings on February 27, 2024 and sell it today you would earn a total of  44.00  from holding Fairfax Financial Holdings or generate 2.4% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  Canadian Apartment Properties

Fairfax Financial

Risk-Adjusted Performance

7 of 100

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 basic indicators, Fairfax Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Canadian Apartment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Apartment Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 Fairfax Financial and Canadian Apartment

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

The idea behind Fairfax Financial Holdings and Canadian Apartment Properties 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.