Correlation Between BYD and Cognizant Technology

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

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

Diversification Opportunities for BYD and Cognizant Technology

-0.2

Correlation Coefficient

BYD  Cognizant Technology

Good diversification

The 3 months correlation between BYD and Cognizant is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and BYD 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 BYD Co 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 BYD i.e., BYD and Cognizant Technology go up and down completely randomly.

Pair Corralation between BYD and Cognizant Technology

Assuming the 90 days trading horizon BYD Co is expected to generate 3.79 times more return on investment than Cognizant Technology. However, BYD is 3.79 times more volatile than Cognizant Technology Solutions. It trades about 0.06 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about -0.29 per unit of risk. If you would invest  3,456  in BYD Co on October 10, 2024 and sell it today you would earn a total of  104.00  from holding BYD Co or generate 3.01% return on investment over 90 days.

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

BYD Co  vs.  Cognizant Technology Solutions

BYD Co

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BYD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cognizant Technology

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 BYD and Cognizant Technology

The main advantage of trading using opposite BYD and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD 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 BYD Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.