Correlation Between Cognizant Technology and GM
Can any of the company-specific risk be diversified away by investing in both Cognizant Technology and GM 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 Cognizant Technology and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cognizant Technology Solutions and General Motors, you can compare the effects of market volatilities on Cognizant Technology and GM 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 Cognizant Technology with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and GM.
Diversification Opportunities for Cognizant Technology and GM
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cognizant and GM is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Cognizant Technology 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 Cognizant Technology Solutions are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and GM go up and down completely randomly.
Pair Corralation between Cognizant Technology and GM
Assuming the 90 days trading horizon Cognizant Technology is expected to generate 2.59 times less return on investment than GM. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.06 times less risky than GM. It trades about 0.05 of its potential returns per unit of risk. General Motors is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 64,135 in General Motors on September 12, 2024 and sell it today you would earn a total of 43,367 from holding General Motors or generate 67.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cognizant Technology Solutions vs. General Motors
Performance |
| Timeline |
| Cognizant Technology |
| General Motors |
Cognizant Technology and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cognizant Technology and GM
The main advantage of trading using opposite Cognizant Technology and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognizant Technology position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.| Cognizant Technology vs. DXC Technology | Cognizant Technology vs. The Select Sector | Cognizant Technology vs. Promotora y Operadora | Cognizant Technology vs. iShares Global Timber |
| GM vs. Monster Beverage Corp | GM vs. Grupo Sports World | GM vs. Verizon Communications | GM vs. Genworth Financial |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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