Correlation Between Cognizant Technology and Axon Enterprise

Can any of the company-specific risk be diversified away by investing in both Cognizant Technology and Axon Enterprise 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 Axon Enterprise 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 Axon Enterprise, you can compare the effects of market volatilities on Cognizant Technology and Axon Enterprise 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 Axon Enterprise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cognizant Technology and Axon Enterprise.

Diversification Opportunities for Cognizant Technology and Axon Enterprise

0.69

Correlation Coefficient

Cognizant Technology  Axon Enterprise

Poor diversification

The 3 months correlation between Cognizant and Axon is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Axon Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axon Enterprise 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 Axon Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axon Enterprise has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Axon Enterprise go up and down completely randomly.

Pair Corralation between Cognizant Technology and Axon Enterprise

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 3.72 times less return on investment than Axon Enterprise. But when comparing it to its historical volatility, Cognizant Technology Solutions is 1.76 times less risky than Axon Enterprise. It trades about 0.05 of its potential returns per unit of risk. Axon Enterprise is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  17,819  in Axon Enterprise on August 31, 2024 and sell it today you would earn a total of  45,454  from holding Axon Enterprise or generate 255.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.76%
Values	Daily Returns

Cognizant Technology Solutions  vs.  Axon Enterprise

Cognizant Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cognizant Technology is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Axon Enterprise

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Axon Enterprise are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Axon Enterprise unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Axon Enterprise

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

The idea behind Cognizant Technology Solutions and Axon Enterprise 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.