Correlation Between Fairfax Financial and Canso Credit

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

Diversification Opportunities for Fairfax Financial and Canso Credit

0.83

Correlation Coefficient

Fairfax Financial  Canso Credit

Very poor diversification

The 3 months correlation between Fairfax and Canso is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Canso Credit Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canso Credit Trust 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 Canso Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canso Credit Trust has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Canso Credit go up and down completely randomly.

Pair Corralation between Fairfax Financial and Canso Credit

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 2.29 times more return on investment than Canso Credit. However, Fairfax Financial is 2.29 times more volatile than Canso Credit Trust. It trades about 0.18 of its potential returns per unit of risk. Canso Credit Trust is currently generating about 0.18 per unit of risk. If you would invest  2,165  in Fairfax Financial Holdings on September 25, 2024 and sell it today you would earn a total of  220.00  from holding Fairfax Financial Holdings or generate 10.16% 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.  Canso Credit Trust

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.

Canso Credit Trust

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canso Credit Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Canso Credit 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 Financial and Canso Credit

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

The idea behind Fairfax Financial Holdings and Canso Credit Trust 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.