Correlation Between Textron and Cognizant Technology

Can any of the company-specific risk be diversified away by investing in both Textron 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 Textron and Cognizant Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Textron and Cognizant Technology Solutions, you can compare the effects of market volatilities on Textron 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 Textron with a short position of Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Textron and Cognizant Technology.

Diversification Opportunities for Textron and Cognizant Technology

-0.3

Correlation Coefficient

Textron  Cognizant Technology

Very good diversification

The 3 months correlation between Textron and Cognizant is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology and Textron 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 Textron 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 Textron i.e., Textron and Cognizant Technology go up and down completely randomly.

Pair Corralation between Textron and Cognizant Technology

Considering the 90-day investment horizon Textron is expected to generate 1.74 times more return on investment than Cognizant Technology. However, Textron is 1.74 times more volatile than Cognizant Technology Solutions. It trades about -0.07 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about -0.34 per unit of risk. If you would invest  9,056  in Textron on February 5, 2024 and sell it today you would lose (497.00) from holding Textron or give up 5.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Textron  vs.  Cognizant Technology Solutions

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Textron is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Cognizant Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cognizant Technology Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Textron and Cognizant Technology

The main advantage of trading using opposite Textron and Cognizant Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron 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 Textron 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.