Correlation Between Tetra Tech and Comfort Systems

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

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

Diversification Opportunities for Tetra Tech and Comfort Systems

0.85

Correlation Coefficient

Tetra Tech  Comfort Systems

Very poor diversification

The 3 months correlation between Tetra and Comfort is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Tetra Tech and Comfort Systems USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Comfort Systems USA and Tetra Tech 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 Tetra Tech are associated (or correlated) with Comfort Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Comfort Systems USA has no effect on the direction of Tetra Tech i.e., Tetra Tech and Comfort Systems go up and down completely randomly.

Pair Corralation between Tetra Tech and Comfort Systems

Given the investment horizon of 90 days Tetra Tech is expected to under-perform the Comfort Systems. But the stock apears to be less risky and, when comparing its historical volatility, Tetra Tech is 2.47 times less risky than Comfort Systems. The stock trades about -0.25 of its potential returns per unit of risk. The Comfort Systems USA is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  42,876  in Comfort Systems USA on December 28, 2024 and sell it today you would lose (10,683) from holding Comfort Systems USA or give up 24.92% of portfolio value over 90 days.

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

Tetra Tech  vs.  Comfort Systems USA

Tetra Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tetra Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Comfort Systems USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Comfort Systems USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tetra Tech and Comfort Systems

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

The idea behind Tetra Tech and Comfort Systems USA 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.