Correlation Between Booz Allen and FTI Consulting

Can any of the company-specific risk be diversified away by investing in both Booz Allen and FTI Consulting 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 Booz Allen and FTI Consulting into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Booz Allen Hamilton and FTI Consulting, you can compare the effects of market volatilities on Booz Allen and FTI Consulting 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 Booz Allen with a short position of FTI Consulting. Check out your portfolio center. Please also check ongoing floating volatility patterns of Booz Allen and FTI Consulting.

Diversification Opportunities for Booz Allen and FTI Consulting

0.89

Correlation Coefficient

Booz Allen  FTI Consulting

Very poor diversification

The 3 months correlation between Booz and FTI is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Booz Allen Hamilton and FTI Consulting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FTI Consulting and Booz Allen 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 Booz Allen Hamilton are associated (or correlated) with FTI Consulting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FTI Consulting has no effect on the direction of Booz Allen i.e., Booz Allen and FTI Consulting go up and down completely randomly.

Pair Corralation between Booz Allen and FTI Consulting

Considering the 90-day investment horizon Booz Allen Hamilton is expected to under-perform the FTI Consulting. In addition to that, Booz Allen is 1.15 times more volatile than FTI Consulting. It trades about -0.12 of its total potential returns per unit of risk. FTI Consulting is currently generating about -0.13 per unit of volatility. If you would invest  19,345  in FTI Consulting on December 25, 2024 and sell it today you would lose (3,216) from holding FTI Consulting or give up 16.62% of portfolio value over 90 days.

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

Booz Allen Hamilton  vs.  FTI Consulting

Booz Allen Hamilton

Risk-Adjusted Performance

Very Weak

Over the last 90 days Booz Allen Hamilton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

FTI Consulting

Risk-Adjusted Performance

Very Weak

Over the last 90 days FTI Consulting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Booz Allen and FTI Consulting

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

The idea behind Booz Allen Hamilton and FTI Consulting 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.