Correlation Between Cognizant Technology and Starbucks

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

Diversification Opportunities for Cognizant Technology and Starbucks

0.59

Correlation Coefficient

Cognizant Technology  Starbucks

Very weak diversification

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

Pair Corralation between Cognizant Technology and Starbucks

If you would invest  140,000  in Cognizant Technology Solutions on September 26, 2024 and sell it today you would earn a total of  0.00  from holding Cognizant Technology Solutions or generate 0.0% 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.  Starbucks

Cognizant Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 11 (%) 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.

Starbucks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cognizant Technology and Starbucks

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

The idea behind Cognizant Technology Solutions and Starbucks 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.