Correlation Between SBM Offshore and Cognizant Technology

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

By analyzing existing cross correlation between SBM Offshore NV and Cognizant Technology Solutions, you can compare the effects of market volatilities on SBM Offshore and Cognizant Technology 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 SBM Offshore with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Cognizant Technology.

Diversification Opportunities for SBM Offshore and Cognizant Technology

0.11

Correlation Coefficient

SBM Offshore  Cognizant Technology

Average diversification

The 3 months correlation between SBM and Cognizant is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and SBM Offshore 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 SBM Offshore NV are associated (or correlated) with Cognizant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognizant Technology has no effect on the direction of SBM Offshore i.e., SBM Offshore and Cognizant Technology go up and down completely randomly.

Pair Corralation between SBM Offshore and Cognizant Technology

Assuming the 90 days trading horizon SBM Offshore NV is expected to generate 1.7 times more return on investment than Cognizant Technology. However, SBM Offshore is 1.7 times more volatile than Cognizant Technology Solutions. It trades about 0.13 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.0 per unit of risk. If you would invest  1,692  in SBM Offshore NV on December 30, 2024 and sell it today you would earn a total of  319.00  from holding SBM Offshore NV or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SBM Offshore NV  vs.  Cognizant Technology Solutions

SBM Offshore NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, SBM Offshore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cognizant Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cognizant Technology Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cognizant Technology is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SBM Offshore and Cognizant Technology

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

The idea behind SBM Offshore NV and Cognizant Technology Solutions 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.