Correlation Between National Beverage and Cognizant Technology

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

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

Diversification Opportunities for National Beverage and Cognizant Technology

0.71

Correlation Coefficient

National Beverage  Cognizant Technology

Poor diversification

The 3 months correlation between National and Cognizant is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and Cognizant Technology go up and down completely randomly.

Pair Corralation between National Beverage and Cognizant Technology

Assuming the 90 days horizon National Beverage Corp is expected to under-perform the Cognizant Technology. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.1 times less risky than Cognizant Technology. The stock trades about -0.56 of its potential returns per unit of risk. The Cognizant Technology Solutions is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  7,598  in Cognizant Technology Solutions on October 11, 2024 and sell it today you would lose (310.00) from holding Cognizant Technology Solutions or give up 4.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

National Beverage Corp  vs.  Cognizant Technology Solutions

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Beverage is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Cognizant Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Cognizant Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with National Beverage and Cognizant Technology

The main advantage of trading using opposite National Beverage and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.