Correlation Between Fairfax Financial and IA Financial

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

Diversification Opportunities for Fairfax Financial and IA Financial

0.94

Correlation Coefficient

Fairfax Financial  IA Financial

Almost no diversification

The 3 months correlation between Fairfax and IAG is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA 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 IA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iA Financial has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and IA Financial go up and down completely randomly.

Pair Corralation between Fairfax Financial and IA Financial

Assuming the 90 days trading horizon Fairfax Financial is expected to generate 1.19 times less return on investment than IA Financial. But when comparing it to its historical volatility, Fairfax Financial Holdings is 1.4 times less risky than IA Financial. It trades about 0.17 of its potential returns per unit of risk. iA Financial is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  11,135  in iA Financial on September 29, 2024 and sell it today you would earn a total of  2,233  from holding iA Financial or generate 20.05% return on investment over 90 days.

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

Fairfax Financial Holdings  vs.  iA Financial

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. 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.

iA Financial

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iA Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IA Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairfax Financial and IA Financial

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

The idea behind Fairfax Financial Holdings and iA 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.