Correlation Between Cognizant Technology and Wipro Limited

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

Diversification Opportunities for Cognizant Technology and Wipro Limited

0.62

Correlation Coefficient

Cognizant Technology  Wipro Limited

Poor diversification

The 3 months correlation between Cognizant and Wipro is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Wipro Limited ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wipro Limited 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 Wipro Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wipro Limited ADR has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Wipro Limited go up and down completely randomly.

Pair Corralation between Cognizant Technology and Wipro Limited

Given the investment horizon of 90 days Cognizant Technology is expected to generate 1.77 times less return on investment than Wipro Limited. But when comparing it to its historical volatility, Cognizant Technology Solutions is 1.25 times less risky than Wipro Limited. It trades about 0.07 of its potential returns per unit of risk. Wipro Limited ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  634.00  in Wipro Limited ADR on September 1, 2024 and sell it today you would earn a total of  65.00  from holding Wipro Limited ADR or generate 10.25% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Wipro Limited ADR

Cognizant Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 5 (%) 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 latest stock price confusion, may contribute to short-horizon losses for the traders.

Wipro Limited ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Wipro Limited may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Cognizant Technology and Wipro Limited

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

The idea behind Cognizant Technology Solutions and Wipro Limited 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.