Correlation Between Cognizant Technology and Microsoft
Can any of the company-specific risk be diversified away by investing in both Cognizant Technology and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Cognizant Technology and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and Microsoft.
Diversification Opportunities for Cognizant Technology and Microsoft
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cognizant and Microsoft is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Microsoft go up and down completely randomly.
Pair Corralation between Cognizant Technology and Microsoft
Assuming the 90 days trading horizon Cognizant Technology is expected to generate 25.35 times less return on investment than Microsoft. But when comparing it to its historical volatility, Cognizant Technology Solutions is 17.57 times less risky than Microsoft. It trades about 0.23 of its potential returns per unit of risk. Microsoft is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 9,789 in Microsoft on September 3, 2024 and sell it today you would earn a total of 705.00 from holding Microsoft or generate 7.2% 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. Microsoft
Performance |
| Timeline |
| Cognizant Technology |
| Microsoft |
Cognizant Technology and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cognizant Technology and Microsoft
The main advantage of trading using opposite Cognizant Technology and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognizant Technology position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Cognizant Technology vs. Accenture plc | Cognizant Technology vs. Infosys Limited | Cognizant Technology vs. Fidelity National Information |
| Microsoft vs. Prudential Financial | Microsoft vs. GP Investments | Microsoft vs. Broadcom | Microsoft vs. Bread Financial 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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