Correlation Between 3M and Cognizant Technology
Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Cognizant Technology Solutions, you can compare the effects of market volatilities on 3M 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 3M with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Cognizant Technology.
Diversification Opportunities for 3M and Cognizant Technology
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between 3M and Cognizant is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and 3M 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 3M Company 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 3M i.e., 3M and Cognizant Technology go up and down completely randomly.
Pair Corralation between 3M and Cognizant Technology
Assuming the 90 days trading horizon 3M Company is expected to generate 2.03 times more return on investment than Cognizant Technology. However, 3M is 2.03 times more volatile than Cognizant Technology Solutions. It trades about 0.02 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 225,159 in 3M Company on September 24, 2024 and sell it today you would earn a total of 32,741 from holding 3M Company or generate 14.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
3M Company vs. Cognizant Technology Solutions
Performance |
| Timeline |
| 3M Company |
| Cognizant Technology |
3M and Cognizant Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Cognizant Technology
The main advantage of trading using opposite 3M and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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.| 3M vs. Cognizant Technology Solutions | 3M vs. GMxico Transportes SAB | 3M vs. Grupo Hotelero Santa | 3M vs. Micron Technology |
| Cognizant Technology vs. Accenture plc | Cognizant Technology vs. International Business Machines | Cognizant Technology vs. Fiserv Inc | Cognizant Technology vs. DXC Technology |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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