Correlation Between Cognizant Technology and Sage Group

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

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

Diversification Opportunities for Cognizant Technology and Sage Group

0.54

Correlation Coefficient

Cognizant Technology  Sage Group

Very weak diversification

The 3 months correlation between Cognizant and Sage is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Sage Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Group PLC and Cognizant Technology 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 Cognizant Technology Solutions are associated (or correlated) with Sage Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Group PLC has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Sage Group go up and down completely randomly.

Pair Corralation between Cognizant Technology and Sage Group

Assuming the 90 days trading horizon Cognizant Technology Solutions is expected to under-perform the Sage Group. In addition to that, Cognizant Technology is 1.41 times more volatile than Sage Group PLC. It trades about -0.23 of its total potential returns per unit of risk. Sage Group PLC is currently generating about -0.06 per unit of volatility. If you would invest  130,300  in Sage Group PLC on October 9, 2024 and sell it today you would lose (1,200) from holding Sage Group PLC or give up 0.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Cognizant Technology Solutions  vs.  Sage Group PLC

Cognizant Technology

Risk-Adjusted Performance

0 of 100

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.

Sage Group PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sage Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Sage Group

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

The idea behind Cognizant Technology Solutions and Sage Group PLC 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.