Correlation Between Cognizant Technology and Infosys

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

Diversification Opportunities for Cognizant Technology and Infosys

-0.4

Correlation Coefficient

Cognizant Technology  Infosys

Very good diversification

The 3 months correlation between Cognizant and Infosys is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Infosys Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Ltd ADR 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Ltd ADR has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Infosys go up and down completely randomly.

Pair Corralation between Cognizant Technology and Infosys

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to generate 0.88 times more return on investment than Infosys. However, Cognizant Technology Solutions is 1.13 times less risky than Infosys. It trades about 0.08 of its potential returns per unit of risk. Infosys Ltd ADR is currently generating about -0.07 per unit of risk. If you would invest  8,021  in Cognizant Technology Solutions on November 28, 2024 and sell it today you would earn a total of  463.00  from holding Cognizant Technology Solutions or generate 5.77% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Infosys Ltd ADR

Cognizant Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Cognizant Technology may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Infosys Ltd ADR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Cognizant Technology and Infosys

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

The idea behind Cognizant Technology Solutions and Infosys Ltd ADR 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.