Correlation Between Fairfax Financial and Enbridge Pref

Can any of the company-specific risk be diversified away by investing in both Fairfax Financial and Enbridge Pref 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 Enbridge Pref 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 Enbridge Pref 1, you can compare the effects of market volatilities on Fairfax Financial and Enbridge Pref 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 Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fairfax Financial and Enbridge Pref.

Diversification Opportunities for Fairfax Financial and Enbridge Pref

0.81

Correlation Coefficient

Fairfax Financial  Enbridge Pref

Very poor diversification

The 3 months correlation between Fairfax and Enbridge is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and Enbridge Pref 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 1 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 Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 1 has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and Enbridge Pref go up and down completely randomly.

Pair Corralation between Fairfax Financial and Enbridge Pref

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 4.87 times more return on investment than Enbridge Pref. However, Fairfax Financial is 4.87 times more volatile than Enbridge Pref 1. It trades about 0.18 of its potential returns per unit of risk. Enbridge Pref 1 is currently generating about 0.15 per unit of risk. If you would invest  167,924  in Fairfax Financial Holdings on September 25, 2024 and sell it today you would earn a total of  32,976  from holding Fairfax Financial Holdings or generate 19.64% 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.  Enbridge Pref 1

Fairfax Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Fairfax Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Enbridge Pref 1

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 1 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Enbridge Pref 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 Enbridge Pref

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

The idea behind Fairfax Financial Holdings and Enbridge Pref 1 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.