Correlation Between KBR and Tetra Tech

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

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

Diversification Opportunities for KBR and Tetra Tech

0.8

Correlation Coefficient

KBR  Tetra Tech

Very poor diversification

The 3 months correlation between KBR and Tetra is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding KBR Inc and Tetra Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tetra Tech and KBR 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 KBR Inc 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 KBR i.e., KBR and Tetra Tech go up and down completely randomly.

Pair Corralation between KBR and Tetra Tech

Considering the 90-day investment horizon KBR Inc is expected to generate 1.01 times more return on investment than Tetra Tech. However, KBR is 1.01 times more volatile than Tetra Tech. It trades about -0.05 of its potential returns per unit of risk. Tetra Tech is currently generating about -0.07 per unit of risk. If you would invest  6,705  in KBR Inc on August 31, 2024 and sell it today you would lose (587.00) from holding KBR Inc or give up 8.75% of portfolio value over 90 days.

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

KBR Inc  vs.  Tetra Tech

KBR Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KBR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest sluggish performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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 KBR and Tetra Tech

The main advantage of trading using opposite KBR and Tetra Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KBR 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 KBR Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.