Correlation Between Walmart and Cognizant Technology

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

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

Diversification Opportunities for Walmart and Cognizant Technology

0.79

Correlation Coefficient

Walmart  Cognizant Technology

Poor diversification

The 3 months correlation between Walmart and Cognizant is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Walmart 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 Walmart 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 Walmart i.e., Walmart and Cognizant Technology go up and down completely randomly.

Pair Corralation between Walmart and Cognizant Technology

Assuming the 90 days trading horizon Walmart is expected to generate 2.35 times more return on investment than Cognizant Technology. However, Walmart is 2.35 times more volatile than Cognizant Technology Solutions. It trades about 0.22 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.14 per unit of risk. If you would invest  155,568  in Walmart on September 23, 2024 and sell it today you would earn a total of  29,432  from holding Walmart or generate 18.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Walmart  vs.  Cognizant Technology Solutions

Walmart

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Cognizant Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly 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 Walmart and Cognizant Technology

The main advantage of trading using opposite Walmart and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.