Correlation Between Fairfax Fin and Brookfield Investments

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

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

Diversification Opportunities for Fairfax Fin and Brookfield Investments

0.46

Correlation Coefficient

Fairfax Fin  Brookfield Investments

Very weak diversification

The 3 months correlation between Fairfax and Brookfield is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Fin Hld and Brookfield Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Investments and Fairfax Fin 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 Fin Hld are associated (or correlated) with Brookfield Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Investments has no effect on the direction of Fairfax Fin i.e., Fairfax Fin and Brookfield Investments go up and down completely randomly.

Pair Corralation between Fairfax Fin and Brookfield Investments

Assuming the 90 days trading horizon Fairfax Fin Hld is expected to generate 2.19 times more return on investment than Brookfield Investments. However, Fairfax Fin is 2.19 times more volatile than Brookfield Investments. It trades about 0.23 of its potential returns per unit of risk. Brookfield Investments is currently generating about 0.06 per unit of risk. If you would invest  2,190  in Fairfax Fin Hld on September 21, 2024 and sell it today you would earn a total of  306.00  from holding Fairfax Fin Hld or generate 13.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	55.56%
Values	Daily Returns

Fairfax Fin Hld  vs.  Brookfield Investments

Fairfax Fin Hld

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Fin Hld are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

Brookfield Investments

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield Investments is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fairfax Fin and Brookfield Investments

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

The idea behind Fairfax Fin Hld and Brookfield Investments 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.