Correlation Between Cognizant Technology and Kyndryl Holdings

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

Diversification Opportunities for Cognizant Technology and Kyndryl Holdings

0.81

Correlation Coefficient

Cognizant Technology  Kyndryl Holdings

Very poor diversification

The 3 months correlation between Cognizant and Kyndryl is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Kyndryl Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kyndryl Holdings 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 Kyndryl Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kyndryl Holdings has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Kyndryl Holdings go up and down completely randomly.

Pair Corralation between Cognizant Technology and Kyndryl Holdings

Given the investment horizon of 90 days Cognizant Technology is expected to generate 7.84 times less return on investment than Kyndryl Holdings. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.07 times less risky than Kyndryl Holdings. It trades about 0.07 of its potential returns per unit of risk. Kyndryl Holdings is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,288  in Kyndryl Holdings on September 12, 2024 and sell it today you would earn a total of  1,224  from holding Kyndryl Holdings or generate 53.5% 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.  Kyndryl Holdings

Cognizant Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 5 (%) 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.

Kyndryl Holdings

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kyndryl Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Kyndryl Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Kyndryl Holdings

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

The idea behind Cognizant Technology Solutions and Kyndryl Holdings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.