Correlation Between Canlan Ice and Fairfax Financial

Can any of the company-specific risk be diversified away by investing in both Canlan Ice and Fairfax 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 Canlan Ice and Fairfax Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Canlan Ice Sports and Fairfax Financial Holdings, you can compare the effects of market volatilities on Canlan Ice and Fairfax 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 Canlan Ice with a short position of Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canlan Ice and Fairfax Financial.

Diversification Opportunities for Canlan Ice and Fairfax Financial

0.52

Correlation Coefficient

Canlan Ice  Fairfax Financial

Very weak diversification

The 3 months correlation between Canlan and Fairfax is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Canlan Ice Sports and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial and Canlan Ice 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 Canlan Ice Sports are associated (or correlated) with Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Canlan Ice i.e., Canlan Ice and Fairfax Financial go up and down completely randomly.

Pair Corralation between Canlan Ice and Fairfax Financial

Assuming the 90 days trading horizon Canlan Ice is expected to generate 3.72 times less return on investment than Fairfax Financial. But when comparing it to its historical volatility, Canlan Ice Sports is 2.95 times less risky than Fairfax Financial. It trades about 0.18 of its potential returns per unit of risk. Fairfax Financial Holdings is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,851  in Fairfax Financial Holdings on September 27, 2024 and sell it today you would earn a total of  349.00  from holding Fairfax Financial Holdings or generate 18.85% return on investment over 90 days.

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

Canlan Ice Sports  vs.  Fairfax Financial Holdings

Canlan Ice Sports

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canlan Ice Sports are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Canlan Ice is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fairfax Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fairfax Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Fairfax Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canlan Ice and Fairfax Financial

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

The idea behind Canlan Ice Sports and Fairfax Financial Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.