Correlation Between Cognizant Technology and Mastercard Incorporated

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

Diversification Opportunities for Cognizant Technology and Mastercard Incorporated

0.89

Correlation Coefficient

Cognizant Technology  Mastercard Incorporated

Very poor diversification

The 3 months correlation between Cognizant and Mastercard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated 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 Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Cognizant Technology and Mastercard Incorporated

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 2.37 times less return on investment than Mastercard Incorporated. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.41 times less risky than Mastercard Incorporated. It trades about 0.14 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  975,552  in Mastercard Incorporated on September 29, 2024 and sell it today you would earn a total of  110,548  from holding Mastercard Incorporated or generate 11.33% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Mastercard Incorporated

Cognizant Technology

Risk-Adjusted Performance

11 of 100

Good

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.

Mastercard Incorporated

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mastercard Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cognizant Technology and Mastercard Incorporated

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

The idea behind Cognizant Technology Solutions and Mastercard Incorporated 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.