Correlation Between Dow Jones and Cognizant Technology
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Cognizant Technology Solutions, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Cognizant Technology.
Diversification Opportunities for Dow Jones and Cognizant Technology
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Cognizant is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Cognizant Technology go up and down completely randomly.
Pair Corralation between Dow Jones and Cognizant Technology
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.49 times more return on investment than Cognizant Technology. However, Dow Jones Industrial is 2.03 times less risky than Cognizant Technology. It trades about 0.11 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.05 per unit of risk. If you would invest 3,428,864 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 1,044,793 from holding Dow Jones Industrial or generate 30.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.44% |
| Values | Daily Returns |
Dow Jones Industrial vs. Cognizant Technology Solutions
Performance |
| Timeline |
Dow Jones and Cognizant Technology Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Cognizant Technology Solutions
Pair trading matchups for Cognizant Technology
Pair Trading with Dow Jones and Cognizant Technology
The main advantage of trading using opposite Dow Jones and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Cognizant Technology vs. Leroy Seafood Group | Cognizant Technology vs. Axfood AB | Cognizant Technology vs. Bell Food Group | Cognizant Technology vs. X FAB Silicon Foundries |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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