Correlation Between Microsoft and Cognizant Technology
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cognizant Technology Solutions, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cognizant Technology.
Diversification Opportunities for Microsoft and Cognizant Technology
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Cognizant is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Cognizant Technology go up and down completely randomly.
Pair Corralation between Microsoft and Cognizant Technology
Given the investment horizon of 90 days Microsoft is expected to generate 0.96 times more return on investment than Cognizant Technology. However, Microsoft is 1.05 times less risky than Cognizant Technology. It trades about 0.1 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 30,307 in Microsoft on January 26, 2024 and sell it today you would earn a total of 10,599 from holding Microsoft or generate 34.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cognizant Technology Solutions
Performance |
| Timeline |
| Microsoft |
| Cognizant Technology |
Microsoft and Cognizant Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cognizant Technology
The main advantage of trading using opposite Microsoft and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Cognizant Technology vs. CACI International | Cognizant Technology vs. CDW Corp | Cognizant Technology vs. Jack Henry Associates | Cognizant Technology vs. Broadridge Financial Solutions |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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