Correlation Between Cognizant Technology and Information Services

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

Diversification Opportunities for Cognizant Technology and Information Services

0.84

Correlation Coefficient

Cognizant Technology  Information Services

Very poor diversification

The 3 months correlation between Cognizant and Information is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Information Services Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Services 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 Information Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Services has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Information Services go up and down completely randomly.

Pair Corralation between Cognizant Technology and Information Services

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to generate 0.61 times more return on investment than Information Services. However, Cognizant Technology Solutions is 1.64 times less risky than Information Services. It trades about 0.1 of its potential returns per unit of risk. Information Services Group is currently generating about 0.05 per unit of risk. If you would invest  6,720  in Cognizant Technology Solutions on September 25, 2024 and sell it today you would earn a total of  1,192  from holding Cognizant Technology Solutions or generate 17.75% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Information Services Group

Cognizant Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Information Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Services Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Information Services may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cognizant Technology and Information Services

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

The idea behind Cognizant Technology Solutions and Information Services Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.