Correlation Between Spirent Communications and Cognizant Technology

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

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

Diversification Opportunities for Spirent Communications and Cognizant Technology

-0.04

Correlation Coefficient

Spirent Communications  Cognizant Technology

Good diversification

The 3 months correlation between Spirent and Cognizant is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Spirent Communications 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 Spirent Communications plc 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 Spirent Communications i.e., Spirent Communications and Cognizant Technology go up and down completely randomly.

Pair Corralation between Spirent Communications and Cognizant Technology

Assuming the 90 days trading horizon Spirent Communications is expected to generate 3.5 times less return on investment than Cognizant Technology. But when comparing it to its historical volatility, Spirent Communications plc is 1.59 times less risky than Cognizant Technology. It trades about 0.03 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,701  in Cognizant Technology Solutions on September 4, 2024 and sell it today you would earn a total of  376.00  from holding Cognizant Technology Solutions or generate 4.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Spirent Communications plc  vs.  Cognizant Technology Solutions

Spirent Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Spirent Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cognizant Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cognizant Technology is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Spirent Communications and Cognizant Technology

The main advantage of trading using opposite Spirent Communications and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications 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 Spirent Communications plc 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.