Correlation Between Capgemini and Cognizant Technology

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

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

Diversification Opportunities for Capgemini and Cognizant Technology

-0.81

Correlation Coefficient

Capgemini  Cognizant Technology

Pay attention - limited upside

The 3 months correlation between Capgemini and Cognizant is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Capgemini SE and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Capgemini 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 Capgemini SE 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 Capgemini i.e., Capgemini and Cognizant Technology go up and down completely randomly.

Pair Corralation between Capgemini and Cognizant Technology

Assuming the 90 days horizon Capgemini SE is expected to under-perform the Cognizant Technology. But the stock apears to be less risky and, when comparing its historical volatility, Capgemini SE is 1.05 times less risky than Cognizant Technology. The stock trades about -0.19 of its potential returns per unit of risk. The Cognizant Technology Solutions is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,824  in Cognizant Technology Solutions on September 13, 2024 and sell it today you would earn a total of  774.00  from holding Cognizant Technology Solutions or generate 11.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Capgemini SE  vs.  Cognizant Technology Solutions

Capgemini SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capgemini SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Cognizant Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cognizant Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capgemini and Cognizant Technology

The main advantage of trading using opposite Capgemini and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capgemini 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 Capgemini SE 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.