Correlation Between Argan and Tetra Tech

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

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

Diversification Opportunities for Argan and Tetra Tech

0.75

Correlation Coefficient

Argan  Tetra Tech

Poor diversification

The 3 months correlation between Argan and Tetra is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Argan Inc and Tetra Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tetra Tech and Argan 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 Argan 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 Argan i.e., Argan and Tetra Tech go up and down completely randomly.

Pair Corralation between Argan and Tetra Tech

Considering the 90-day investment horizon Argan Inc is expected to generate 2.75 times more return on investment than Tetra Tech. However, Argan is 2.75 times more volatile than Tetra Tech. It trades about 0.25 of its potential returns per unit of risk. Tetra Tech is currently generating about 0.25 per unit of risk. If you would invest  5,076  in Argan Inc on February 8, 2024 and sell it today you would earn a total of  1,425  from holding Argan Inc or generate 28.07% return on investment over 90 days.

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

Argan Inc  vs.  Tetra Tech

Argan Inc

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Argan Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Argan showed solid returns over the last few months and may actually be approaching a breakup point.

Tetra Tech

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tetra Tech are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent technical and fundamental indicators, Tetra Tech disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Argan and Tetra Tech

The main advantage of trading using opposite Argan and Tetra Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Argan 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 Argan 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.