Correlation Between Fairfax Financial and IGM Financial

Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and IGM 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 Fairfax Financial and IGM Financial 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 IGM Financial, you can compare the effects of market volatilities on Fairfax Financial and IGM 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 Fairfax Financial with a short position of IGM Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and IGM Financial.

Diversification Opportunities for Fairfax Financial and IGM Financial

0.84

Correlation Coefficient

Fairfax Financial  IGM Financial

Very poor diversification

The 3 months correlation between Fairfax and IGM is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and IGM Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGM Financial 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 IGM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGM Financial has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and IGM Financial go up and down completely randomly.

Pair Corralation between Fairfax Financial and IGM Financial

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 2.46 times less return on investment than IGM Financial. In addition to that, Fairfax Financial is 1.02 times more volatile than IGM Financial. It trades about 0.15 of its total potential returns per unit of risk. IGM Financial is currently generating about 0.38 per unit of volatility. If you would invest  3,859  in IGM Financial on September 14, 2024 and sell it today you would earn a total of  898.00  from holding IGM Financial or generate 23.27% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  IGM Financial

Fairfax Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Fairfax Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

IGM Financial

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Financial are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IGM Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and IGM Financial

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

The idea behind Fairfax Financial Holdings and IGM Financial 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.