Correlation Between Cognizant Technology and Innodata

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

Diversification Opportunities for Cognizant Technology and Innodata

0.59

Correlation Coefficient

Cognizant Technology  Innodata

Very weak diversification

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

Pair Corralation between Cognizant Technology and Innodata

Given the investment horizon of 90 days Cognizant Technology is expected to generate 10.92 times less return on investment than Innodata. But when comparing it to its historical volatility, Cognizant Technology Solutions is 5.96 times less risky than Innodata. It trades about 0.05 of its potential returns per unit of risk. Innodata is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,052  in Innodata on December 2, 2024 and sell it today you would earn a total of  1,220  from holding Innodata or generate 30.11% 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.  Innodata

Cognizant Technology

Risk-Adjusted Performance

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 newest stock price confusion, may contribute to short-horizon losses for the traders.

Innodata

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Innodata are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Innodata exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Innodata

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

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