Correlation Between Fairfax Financial and Canada Rare

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

Diversification Opportunities for Fairfax Financial and Canada Rare

0.45

Correlation Coefficient

Fairfax Financial  Canada Rare

Very weak diversification

The 3 months correlation between Fairfax and Canada is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Canada Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canada Rare Earth 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 Canada Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canada Rare Earth has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Canada Rare go up and down completely randomly.

Pair Corralation between Fairfax Financial and Canada Rare

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to under-perform the Canada Rare. But the preferred stock apears to be less risky and, when comparing its historical volatility, Fairfax Financial Holdings is 32.33 times less risky than Canada Rare. The preferred stock trades about -0.04 of its potential returns per unit of risk. The Canada Rare Earth is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Canada Rare Earth on September 25, 2024 and sell it today you would lose (0.50) from holding Canada Rare Earth or give up 25.0% of portfolio value over 90 days.

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

Fairfax Financial Holdings  vs.  Canada Rare Earth

Fairfax Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 13 (%) 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.

Canada Rare Earth

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canada Rare Earth are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Canada Rare showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and Canada Rare

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

The idea behind Fairfax Financial Holdings and Canada Rare Earth 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.