Correlation Between Sumitomo Mitsui and Cognizant Technology

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

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

Diversification Opportunities for Sumitomo Mitsui and Cognizant Technology

-0.5

Correlation Coefficient

Sumitomo Mitsui  Cognizant Technology

Very good diversification

The 3 months correlation between Sumitomo and Cognizant is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Sumitomo Mitsui 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 Sumitomo Mitsui Financial 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 Sumitomo Mitsui i.e., Sumitomo Mitsui and Cognizant Technology go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Cognizant Technology

Assuming the 90 days trading horizon Sumitomo Mitsui Financial is expected to under-perform the Cognizant Technology. But the stock apears to be less risky and, when comparing its historical volatility, Sumitomo Mitsui Financial is 1.29 times less risky than Cognizant Technology. The stock trades about 0.0 of its potential returns per unit of risk. The Cognizant Technology Solutions is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  43,333  in Cognizant Technology Solutions on December 5, 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	98.31%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Cognizant Technology Solutions

Sumitomo Mitsui Financial

Risk-Adjusted Performance

Very Weak

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

The main advantage of trading using opposite Sumitomo Mitsui and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Mitsui 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 Sumitomo Mitsui Financial 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.