Correlation Between Barrett Business and Mastech Holdings
Can any of the company-specific risk be diversified away by investing in both Barrett Business and Mastech Holdings 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 Barrett Business and Mastech Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Barrett Business Services and Mastech Holdings, you can compare the effects of market volatilities on Barrett Business and Mastech Holdings 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 Barrett Business with a short position of Mastech Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barrett Business and Mastech Holdings.
Diversification Opportunities for Barrett Business and Mastech Holdings
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Barrett and Mastech is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Barrett Business Services and Mastech Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastech Holdings and Barrett Business 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 Barrett Business Services are associated (or correlated) with Mastech Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastech Holdings has no effect on the direction of Barrett Business i.e., Barrett Business and Mastech Holdings go up and down completely randomly.
Pair Corralation between Barrett Business and Mastech Holdings
Given the investment horizon of 90 days Barrett Business Services is expected to under-perform the Mastech Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Barrett Business Services is 1.34 times less risky than Mastech Holdings. The stock trades about -0.06 of its potential returns per unit of risk. The Mastech Holdings is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 875.00 in Mastech Holdings on January 26, 2024 and sell it today you would lose (12.00) from holding Mastech Holdings or give up 1.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Barrett Business Services vs. Mastech Holdings
Performance |
| Timeline |
| Barrett Business Services |
| Mastech Holdings |
Barrett Business and Mastech Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Barrett Business and Mastech Holdings
The main advantage of trading using opposite Barrett Business and Mastech Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barrett Business position performs unexpectedly, Mastech Holdings 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 Mastech Holdings will offset losses from the drop in Mastech Holdings' long position.The idea behind Barrett Business Services and Mastech 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.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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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