Correlation Between Cognizant Technology and Digimarc

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

Diversification Opportunities for Cognizant Technology and Digimarc

0.62

Correlation Coefficient

Cognizant Technology  Digimarc

Poor diversification

The 3 months correlation between Cognizant and Digimarc is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Digimarc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digimarc 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 Digimarc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digimarc has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Digimarc go up and down completely randomly.

Pair Corralation between Cognizant Technology and Digimarc

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to under-perform the Digimarc. But the stock apears to be less risky and, when comparing its historical volatility, Cognizant Technology Solutions is 2.7 times less risky than Digimarc. The stock trades about -0.06 of its potential returns per unit of risk. The Digimarc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,371  in Digimarc on September 26, 2024 and sell it today you would earn a total of  418.00  from holding Digimarc or generate 12.4% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  Digimarc

Cognizant Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Digimarc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digimarc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Digimarc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Digimarc

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

The idea behind Cognizant Technology Solutions and Digimarc 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.