Correlation Between Extra Space and Cognizant Technology

Can any of the company-specific risk be diversified away by investing in both Extra Space and Cognizant Technology 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 Extra Space and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Extra Space Storage and Cognizant Technology Solutions, you can compare the effects of market volatilities on Extra Space and Cognizant Technology 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 Extra Space with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extra Space and Cognizant Technology.

Diversification Opportunities for Extra Space and Cognizant Technology

-0.39

Correlation Coefficient

Extra Space  Cognizant Technology

Very good diversification

The 3 months correlation between Extra and Cognizant is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Extra Space 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 Extra Space Storage are associated (or correlated) with Cognizant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognizant Technology has no effect on the direction of Extra Space i.e., Extra Space and Cognizant Technology go up and down completely randomly.

Pair Corralation between Extra Space and Cognizant Technology

Assuming the 90 days trading horizon Extra Space Storage is expected to under-perform the Cognizant Technology. But the stock apears to be less risky and, when comparing its historical volatility, Extra Space Storage is 2.42 times less risky than Cognizant Technology. The stock trades about -0.06 of its potential returns per unit of risk. The Cognizant Technology Solutions is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  43,333  in Cognizant Technology Solutions on December 2, 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	Insignificant
Accuracy	95.45%
Values	Daily Returns

Extra Space Storage  vs.  Cognizant Technology Solutions

Extra Space Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Extra Space and Cognizant Technology

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

The idea behind Extra Space Storage and Cognizant Technology Solutions 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.