Correlation Between Cognizant Technology and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Cognizant Technology and Southwest Airlines 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 Southwest Airlines 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 Southwest Airlines, you can compare the effects of market volatilities on Cognizant Technology and Southwest Airlines 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 Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and Southwest Airlines.
Diversification Opportunities for Cognizant Technology and Southwest Airlines
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cognizant and Southwest is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines 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 Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Southwest Airlines go up and down completely randomly.
Pair Corralation between Cognizant Technology and Southwest Airlines
Assuming the 90 days trading horizon Cognizant Technology is expected to generate 3.97 times less return on investment than Southwest Airlines. But when comparing it to its historical volatility, Cognizant Technology Solutions is 3.67 times less risky than Southwest Airlines. It trades about 0.14 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 53,669 in Southwest Airlines on August 25, 2024 and sell it today you would earn a total of 10,331 from holding Southwest Airlines or generate 19.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cognizant Technology Solutions vs. Southwest Airlines
Performance |
| Timeline |
| Cognizant Technology |
| Southwest Airlines |
Cognizant Technology and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cognizant Technology and Southwest Airlines
The main advantage of trading using opposite Cognizant Technology and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognizant Technology position performs unexpectedly, Southwest Airlines 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.| Cognizant Technology vs. KB Home | Cognizant Technology vs. Micron Technology | Cognizant Technology vs. Martin Marietta Materials | Cognizant Technology vs. Applied Materials |
| Southwest Airlines vs. Grupo Sports World | Southwest Airlines vs. DXC Technology | Southwest Airlines vs. Micron Technology | Southwest Airlines vs. McEwen Mining |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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