Correlation Between Cognizant Technology and Gilead Sciences

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

Diversification Opportunities for Cognizant Technology and Gilead Sciences

0.92

Correlation Coefficient

Cognizant Technology  Gilead Sciences

Almost no diversification

The 3 months correlation between Cognizant and Gilead is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Gilead Sciences go up and down completely randomly.

Pair Corralation between Cognizant Technology and Gilead Sciences

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 49.8 times less return on investment than Gilead Sciences. But when comparing it to its historical volatility, Cognizant Technology Solutions is 22.58 times less risky than Gilead Sciences. It trades about 0.13 of its potential returns per unit of risk. Gilead Sciences is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  185,732  in Gilead Sciences on December 23, 2024 and sell it today you would earn a total of  45,568  from holding Gilead Sciences or generate 24.53% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Gilead Sciences

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.

Gilead Sciences

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Gilead Sciences showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Gilead Sciences

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

The idea behind Cognizant Technology Solutions and Gilead Sciences 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..