Correlation Between Liberty Broadband and Cognizant Technology

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

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

Diversification Opportunities for Liberty Broadband and Cognizant Technology

0.13

Correlation Coefficient

Liberty Broadband  Cognizant Technology

Average diversification

The 3 months correlation between Liberty and Cognizant is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Broadband and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Liberty Broadband 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 Liberty Broadband 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 Liberty Broadband i.e., Liberty Broadband and Cognizant Technology go up and down completely randomly.

Pair Corralation between Liberty Broadband and Cognizant Technology

Assuming the 90 days trading horizon Liberty Broadband is expected to generate 4.19 times less return on investment than Cognizant Technology. In addition to that, Liberty Broadband is 1.12 times more volatile than Cognizant Technology Solutions. It trades about 0.03 of its total potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.13 per unit of volatility. If you would invest  29,653  in Cognizant Technology Solutions on December 27, 2024 and sell it today you would earn a total of  14,973  from holding Cognizant Technology Solutions or generate 50.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	30.0%
Values	Daily Returns

Liberty Broadband  vs.  Cognizant Technology Solutions

Liberty Broadband

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Broadband are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Liberty Broadband may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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.

Pair Trading with Liberty Broadband and Cognizant Technology

The main advantage of trading using opposite Liberty Broadband and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty Broadband 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 Liberty Broadband 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.