Correlation Between Cognizant Technology and Berkshire Hathaway

Can any of the company-specific risk be diversified away by investing in both Cognizant Technology and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway, you can compare the effects of market volatilities on Cognizant Technology and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and Berkshire Hathaway.

Diversification Opportunities for Cognizant Technology and Berkshire Hathaway

0.83

Correlation Coefficient

Cognizant Technology  Berkshire Hathaway

Very poor diversification

The 3 months correlation between Cognizant and Berkshire is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Cognizant Technology and Berkshire Hathaway

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 29.73 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, Cognizant Technology Solutions is 24.52 times less risky than Berkshire Hathaway. It trades about 0.13 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  926,918  in Berkshire Hathaway on December 25, 2024 and sell it today you would earn a total of  126,282  from holding Berkshire Hathaway or generate 13.62% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Berkshire Hathaway

Cognizant Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly 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.

Berkshire Hathaway

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Berkshire Hathaway showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Berkshire Hathaway

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

The idea behind Cognizant Technology Solutions and Berkshire Hathaway 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.