Correlation Between Cognizant Technology and Automatic Data

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

Diversification Opportunities for Cognizant Technology and Automatic Data

0.02

Correlation Coefficient

Cognizant Technology  Automatic Data

Significant diversification

The 3 months correlation between Cognizant and Automatic is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Automatic Data go up and down completely randomly.

Pair Corralation between Cognizant Technology and Automatic Data

Assuming the 90 days trading horizon Cognizant Technology Solutions is expected to generate 1.57 times more return on investment than Automatic Data. However, Cognizant Technology is 1.57 times more volatile than Automatic Data Processing. It trades about 0.03 of its potential returns per unit of risk. Automatic Data Processing is currently generating about -0.03 per unit of risk. If you would invest  43,333  in Cognizant Technology Solutions on December 27, 2024 and sell it today you would earn a total of  1,293  from holding Cognizant Technology Solutions or generate 2.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Cognizant Technology Solutions  vs.  Automatic Data Processing

Cognizant Technology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Automatic Data Processing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Automatic Data Processing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Automatic Data is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cognizant Technology and Automatic Data

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

The idea behind Cognizant Technology Solutions and Automatic Data Processing 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.