Correlation Between National Bank and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both National Bank 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 National Bank and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bank of and Fairfax Financial Holdings, you can compare the effects of market volatilities on National Bank 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 National Bank with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Fairfax Financial.
Diversification Opportunities for National Bank and Fairfax Financial
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and Fairfax is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and National Bank 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 National Bank of 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 National Bank i.e., National Bank and Fairfax Financial go up and down completely randomly.
Pair Corralation between National Bank and Fairfax Financial
Assuming the 90 days horizon National Bank is expected to generate 2.27 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, National Bank of is 1.44 times less risky than Fairfax Financial. It trades about 0.08 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 66,044 in Fairfax Financial Holdings on January 25, 2024 and sell it today you would earn a total of 81,681 from holding Fairfax Financial Holdings or generate 123.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank of vs. Fairfax Financial Holdings
Performance |
| Timeline |
| National Bank |
| Fairfax Financial |
National Bank and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and Fairfax Financial
The main advantage of trading using opposite National Bank and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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.| National Bank vs. Element Fleet Management | National Bank vs. Martinrea International | National Bank vs. Mullen Group |
| Fairfax Financial vs. Element Fleet Management | Fairfax Financial vs. Martinrea International | Fairfax Financial vs. Mullen Group |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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