Correlation Between Autohome and Cognizant Technology

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

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

Diversification Opportunities for Autohome and Cognizant Technology

-0.53

Correlation Coefficient

Autohome  Cognizant Technology

Excellent diversification

The 3 months correlation between Autohome and Cognizant is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Autohome and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Autohome 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 Autohome 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 Autohome i.e., Autohome and Cognizant Technology go up and down completely randomly.

Pair Corralation between Autohome and Cognizant Technology

Assuming the 90 days trading horizon Autohome is expected to generate 2.44 times less return on investment than Cognizant Technology. In addition to that, Autohome is 2.4 times more volatile than Cognizant Technology Solutions. It trades about 0.01 of its total potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.08 per unit of volatility. If you would invest  31,248  in Cognizant Technology Solutions on September 28, 2024 and sell it today you would earn a total of  12,085  from holding Cognizant Technology Solutions or generate 38.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	71.43%
Values	Daily Returns

Autohome  vs.  Cognizant Technology Solutions

Autohome

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Autohome has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 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 Autohome and Cognizant Technology

The main advantage of trading using opposite Autohome and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autohome 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 Autohome 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..