Correlation Between British American and Cognizant Technology
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Cognizant Technology Solutions, you can compare the effects of market volatilities on British American 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 British American with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Cognizant Technology.
Diversification Opportunities for British American and Cognizant Technology
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between British and Cognizant is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and British American 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 British American Tobacco 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 British American i.e., British American and Cognizant Technology go up and down completely randomly.
Pair Corralation between British American and Cognizant Technology
Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.31 times more return on investment than Cognizant Technology. However, British American is 1.31 times more volatile than Cognizant Technology Solutions. It trades about 0.11 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.1 per unit of risk. If you would invest 2,864 in British American Tobacco on August 26, 2024 and sell it today you would earn a total of 1,488 from holding British American Tobacco or generate 51.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 63.2% |
| Values | Daily Returns |
British American Tobacco vs. Cognizant Technology Solutions
Performance |
| Timeline |
| British American Tobacco |
| Cognizant Technology |
British American and Cognizant Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Cognizant Technology
The main advantage of trading using opposite British American and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. Fras le SA | British American vs. Clave Indices De | British American vs. BTG Pactual Logstica | British American vs. Telefonaktiebolaget LM Ericsson |
| Cognizant Technology vs. Charter Communications | Cognizant Technology vs. New Oriental Education | Cognizant Technology vs. TAL Education Group | Cognizant Technology vs. United Airlines Holdings |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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