Correlation Between Cognizant Technology and Home Depot
Can any of the company-specific risk be diversified away by investing in both Cognizant Technology and Home Depot 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 Home Depot 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 The Home Depot, you can compare the effects of market volatilities on Cognizant Technology and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and Home Depot.
Diversification Opportunities for Cognizant Technology and Home Depot
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cognizant and Home is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Home Depot go up and down completely randomly.
Pair Corralation between Cognizant Technology and Home Depot
Assuming the 90 days trading horizon Cognizant Technology Solutions is expected to generate 0.03 times more return on investment than Home Depot. However, Cognizant Technology Solutions is 29.31 times less risky than Home Depot. It trades about 0.13 of its potential returns per unit of risk. The Home Depot is currently generating about -0.09 per unit of risk. If you would invest 139,372 in Cognizant Technology Solutions on December 22, 2024 and sell it today you would earn a total of 628.00 from holding Cognizant Technology Solutions or generate 0.45% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Cognizant Technology Solutions vs. The Home Depot
Performance |
Timeline |
Cognizant Technology |
Home Depot |
Cognizant Technology and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cognizant Technology and Home Depot
The main advantage of trading using opposite Cognizant Technology and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognizant Technology position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.Cognizant Technology vs. Costco Wholesale | Cognizant Technology vs. Air Transport Services | Cognizant Technology vs. Capital One Financial | Cognizant Technology vs. United Airlines Holdings |
Home Depot vs. Prudential Financial | Home Depot vs. Martin Marietta Materials | Home Depot vs. UnitedHealth Group Incorporated | Home Depot vs. Burlington Stores |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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