Correlation Between Fairfax Financial and MCAN Mortgage

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

Diversification Opportunities for Fairfax Financial and MCAN Mortgage

0.91

Correlation Coefficient

Fairfax Financial  MCAN Mortgage

Almost no diversification

The 3 months correlation between Fairfax and MCAN is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Fairfax Financial Holdings and MCAN Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCAN Mortgage 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 MCAN Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCAN Mortgage has no effect on the direction of Fairfax Financial i.e., Fairfax Financial and MCAN Mortgage go up and down completely randomly.

Pair Corralation between Fairfax Financial and MCAN Mortgage

Assuming the 90 days trading horizon Fairfax Financial Holdings is expected to generate 1.36 times more return on investment than MCAN Mortgage. However, Fairfax Financial is 1.36 times more volatile than MCAN Mortgage. It trades about 0.19 of its potential returns per unit of risk. MCAN Mortgage is currently generating about 0.14 per unit of risk. If you would invest  165,666  in Fairfax Financial Holdings on September 13, 2024 and sell it today you would earn a total of  35,161  from holding Fairfax Financial Holdings or generate 21.22% 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.  MCAN Mortgage

Fairfax Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 15 (%) 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.

MCAN Mortgage

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MCAN Mortgage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, MCAN Mortgage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fairfax Financial and MCAN Mortgage

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

The idea behind Fairfax Financial Holdings and MCAN Mortgage 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..