Correlation Between Cognizant Technology and BHP

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

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

Diversification Opportunities for Cognizant Technology and BHP

0.28

Correlation Coefficient

Cognizant Technology  BHP

Modest diversification

The 3 months correlation between Cognizant and BHP is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and BHP Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group and Cognizant Technology 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 Cognizant Technology Solutions are associated (or correlated) with BHP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and BHP go up and down completely randomly.

Pair Corralation between Cognizant Technology and BHP

Assuming the 90 days trading horizon Cognizant Technology Solutions is expected to generate 0.59 times more return on investment than BHP. However, Cognizant Technology Solutions is 1.7 times less risky than BHP. It trades about 0.17 of its potential returns per unit of risk. BHP Group is currently generating about 0.07 per unit of risk. If you would invest  109,090  in Cognizant Technology Solutions on September 24, 2024 and sell it today you would earn a total of  30,910  from holding Cognizant Technology Solutions or generate 28.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cognizant Technology Solutions  vs.  BHP Group

Cognizant Technology

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BHP Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, BHP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and BHP

The main advantage of trading using opposite Cognizant Technology and BHP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognizant Technology position performs unexpectedly, BHP 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 BHP will offset losses from the drop in BHP's long position.

The idea behind Cognizant Technology Solutions and BHP Group 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.