Correlation Between Cognizant Technology and CDW Corp

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

Diversification Opportunities for Cognizant Technology and CDW Corp

0.48

Correlation Coefficient

Cognizant Technology  CDW Corp

Very weak diversification

The 3 months correlation between Cognizant and CDW is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and CDW Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDW Corp 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 CDW Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDW Corp has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and CDW Corp go up and down completely randomly.

Pair Corralation between Cognizant Technology and CDW Corp

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to generate 0.77 times more return on investment than CDW Corp. However, Cognizant Technology Solutions is 1.3 times less risky than CDW Corp. It trades about 0.0 of its potential returns per unit of risk. CDW Corp is currently generating about -0.04 per unit of risk. If you would invest  7,649  in Cognizant Technology Solutions on December 29, 2024 and sell it today you would lose (59.00) from holding Cognizant Technology Solutions or give up 0.77% 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.  CDW Corp

Cognizant Technology

Risk-Adjusted Performance

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.

CDW Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CDW Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, CDW Corp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cognizant Technology and CDW Corp

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

The idea behind Cognizant Technology Solutions and CDW Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.