Correlation Between Cognizant Technology and Charter Communications

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

Diversification Opportunities for Cognizant Technology and Charter Communications

-0.4

Correlation Coefficient

Cognizant Technology  Charter Communications

Very good diversification

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

Pair Corralation between Cognizant Technology and Charter Communications

Assuming the 90 days trading horizon Cognizant Technology Solutions is expected to generate 0.85 times more return on investment than Charter Communications. However, Cognizant Technology Solutions is 1.18 times less risky than Charter Communications. It trades about 0.11 of its potential returns per unit of risk. Charter Communications is currently generating about -0.08 per unit of risk. If you would invest  43,333  in Cognizant Technology Solutions on December 4, 2024 and sell it today you would earn a total of  5,743  from holding Cognizant Technology Solutions or generate 13.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Cognizant Technology Solutions  vs.  Charter Communications

Cognizant Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cognizant Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Charter Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cognizant Technology and Charter Communications

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

The idea behind Cognizant Technology Solutions and Charter Communications 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.