Correlation Between Topbuild Corp and Tetra Tech

Can any of the company-specific risk be diversified away by investing in both Topbuild Corp and Tetra Tech 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 Topbuild Corp and Tetra Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Topbuild Corp and Tetra Tech, you can compare the effects of market volatilities on Topbuild Corp and Tetra Tech 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 Topbuild Corp with a short position of Tetra Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Topbuild Corp and Tetra Tech.

Diversification Opportunities for Topbuild Corp and Tetra Tech

0.23

Correlation Coefficient

Topbuild Corp  Tetra Tech

Modest diversification

The 3 months correlation between Topbuild and Tetra is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Topbuild Corp and Tetra Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tetra Tech and Topbuild Corp 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 Topbuild Corp are associated (or correlated) with Tetra Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tetra Tech has no effect on the direction of Topbuild Corp i.e., Topbuild Corp and Tetra Tech go up and down completely randomly.

Pair Corralation between Topbuild Corp and Tetra Tech

Considering the 90-day investment horizon Topbuild Corp is expected to generate 1.04 times more return on investment than Tetra Tech. However, Topbuild Corp is 1.04 times more volatile than Tetra Tech. It trades about 0.04 of its potential returns per unit of risk. Tetra Tech is currently generating about -0.07 per unit of risk. If you would invest  37,138  in Topbuild Corp on August 31, 2024 and sell it today you would earn a total of  1,862  from holding Topbuild Corp or generate 5.01% return on investment over 90 days.

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

Topbuild Corp  vs.  Tetra Tech

Topbuild Corp

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Topbuild Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Topbuild Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Tetra Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tetra Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Topbuild Corp and Tetra Tech

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

The idea behind Topbuild Corp and Tetra Tech 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.