Correlation Between Cognizant Technology and DATATEC

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

By analyzing existing cross correlation between Cognizant Technology Solutions and DATATEC LTD 2, you can compare the effects of market volatilities on Cognizant Technology and DATATEC 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 Cognizant Technology with a short position of DATATEC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and DATATEC.

Diversification Opportunities for Cognizant Technology and DATATEC

0.59

Correlation Coefficient

Cognizant Technology  DATATEC

Very weak diversification

The 3 months correlation between Cognizant and DATATEC is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and DATATEC LTD 2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DATATEC LTD 2 and Cognizant Technology 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 Cognizant Technology Solutions are associated (or correlated) with DATATEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DATATEC LTD 2 has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and DATATEC go up and down completely randomly.

Pair Corralation between Cognizant Technology and DATATEC

Assuming the 90 days horizon Cognizant Technology is expected to generate 3.93 times less return on investment than DATATEC. But when comparing it to its historical volatility, Cognizant Technology Solutions is 1.4 times less risky than DATATEC. It trades about 0.09 of its potential returns per unit of risk. DATATEC LTD 2 is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  357.00  in DATATEC LTD 2 on October 8, 2024 and sell it today you would earn a total of  139.00  from holding DATATEC LTD 2 or generate 38.94% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  DATATEC LTD 2

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 fragile basic indicators, Cognizant Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

DATATEC LTD 2

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DATATEC LTD 2 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, DATATEC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and DATATEC

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

The idea behind Cognizant Technology Solutions and DATATEC LTD 2 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.