Correlation Between United States and Cognizant Technology

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

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

Diversification Opportunities for United States and Cognizant Technology

0.5

Correlation Coefficient

United States  Cognizant Technology

Very weak diversification

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

Pair Corralation between United States and Cognizant Technology

Given the investment horizon of 90 days United States Steel is expected to generate 53.17 times more return on investment than Cognizant Technology. However, United States is 53.17 times more volatile than Cognizant Technology Solutions. It trades about 0.19 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.13 per unit of risk. If you would invest  63,423  in United States Steel on December 30, 2024 and sell it today you would earn a total of  24,024  from holding United States Steel or generate 37.88% return on investment over 90 days.

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

United States Steel  vs.  Cognizant Technology Solutions

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

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 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 United States and Cognizant Technology

The main advantage of trading using opposite United States and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.