Correlation Between Cognyte Software and NetScout Systems

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

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

Diversification Opportunities for Cognyte Software and NetScout Systems

0.62

Correlation Coefficient

Cognyte Software  NetScout Systems

Poor diversification

The 3 months correlation between Cognyte and NetScout is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cognyte Software and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems and Cognyte Software 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 Cognyte Software are associated (or correlated) with NetScout Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetScout Systems has no effect on the direction of Cognyte Software i.e., Cognyte Software and NetScout Systems go up and down completely randomly.

Pair Corralation between Cognyte Software and NetScout Systems

Given the investment horizon of 90 days Cognyte Software is expected to generate 1.46 times more return on investment than NetScout Systems. However, Cognyte Software is 1.46 times more volatile than NetScout Systems. It trades about 0.07 of its potential returns per unit of risk. NetScout Systems is currently generating about -0.02 per unit of risk. If you would invest  338.00  in Cognyte Software on September 26, 2024 and sell it today you would earn a total of  533.00  from holding Cognyte Software or generate 157.69% return on investment over 90 days.

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

Cognyte Software  vs.  NetScout Systems

Cognyte Software

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognyte Software are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cognyte Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

NetScout Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, NetScout Systems is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cognyte Software and NetScout Systems

The main advantage of trading using opposite Cognyte Software and NetScout Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognyte Software position performs unexpectedly, NetScout Systems 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 NetScout Systems will offset losses from the drop in NetScout Systems' long position.

The idea behind Cognyte Software and NetScout Systems 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.