Correlation Between Block and Cognizant Technology
Can any of the company-specific risk be diversified away by investing in both Block 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 Block and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Block Inc and Cognizant Technology Solutions, you can compare the effects of market volatilities on Block 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 Block with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Block and Cognizant Technology.
Diversification Opportunities for Block and Cognizant Technology
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Block and Cognizant is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Block 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 Block Inc 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 Block i.e., Block and Cognizant Technology go up and down completely randomly.
Pair Corralation between Block and Cognizant Technology
Allowing for the 90-day total investment horizon Block Inc is expected to under-perform the Cognizant Technology. In addition to that, Block is 2.76 times more volatile than Cognizant Technology Solutions. It trades about -0.17 of its total potential returns per unit of risk. Cognizant Technology Solutions is currently generating about -0.3 per unit of volatility. If you would invest 7,201 in Cognizant Technology Solutions on January 25, 2024 and sell it today you would lose (471.00) from holding Cognizant Technology Solutions or give up 6.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Block Inc vs. Cognizant Technology Solutions
Performance |
| Timeline |
| Block Inc |
| Cognizant Technology |
Block and Cognizant Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Block and Cognizant Technology
The main advantage of trading using opposite Block and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Block 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.The idea behind Block Inc and Cognizant Technology Solutions pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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