Correlation Between Cognizant Technology and Aurora Innovation

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

Diversification Opportunities for Cognizant Technology and Aurora Innovation

0.49

Correlation Coefficient

Cognizant Technology  Aurora Innovation

Very weak diversification

The 3 months correlation between Cognizant and Aurora is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Aurora Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Innovation 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 Aurora Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Innovation has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Aurora Innovation go up and down completely randomly.

Pair Corralation between Cognizant Technology and Aurora Innovation

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to under-perform the Aurora Innovation. But the stock apears to be less risky and, when comparing its historical volatility, Cognizant Technology Solutions is 6.72 times less risky than Aurora Innovation. The stock trades about -0.02 of its potential returns per unit of risk. The Aurora Innovation is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  734.00  in Aurora Innovation on December 26, 2024 and sell it today you would lose (22.00) from holding Aurora Innovation or give up 3.0% of portfolio value over 90 days.

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

Cognizant Technology Solutions  vs.  Aurora Innovation

Cognizant Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cognizant Technology Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Aurora Innovation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Innovation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Aurora Innovation reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Aurora Innovation

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

The idea behind Cognizant Technology Solutions and Aurora Innovation 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.