Correlation Between Applied Materials, and Cognizant Technology

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

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

Diversification Opportunities for Applied Materials, and Cognizant Technology

-0.27

Correlation Coefficient

Applied Materials,  Cognizant Technology

Very good diversification

The 3 months correlation between Applied and Cognizant is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials, and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Applied Materials, 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 Applied Materials, 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 Applied Materials, i.e., Applied Materials, and Cognizant Technology go up and down completely randomly.

Pair Corralation between Applied Materials, and Cognizant Technology

Assuming the 90 days trading horizon Applied Materials, is expected to generate 2.02 times more return on investment than Cognizant Technology. However, Applied Materials, is 2.02 times more volatile than Cognizant Technology Solutions. It trades about 0.07 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.07 per unit of risk. If you would invest  5,926  in Applied Materials, on October 23, 2024 and sell it today you would earn a total of  6,441  from holding Applied Materials, or generate 108.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	65.92%
Values	Daily Returns

Applied Materials,  vs.  Cognizant Technology Solutions

Applied Materials,

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials, are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Applied Materials, sustained solid returns over the last few months and may actually be approaching a breakup point.

Cognizant Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials, and Cognizant Technology

The main advantage of trading using opposite Applied Materials, and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials, 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 Applied Materials, 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.