Correlation Between Cognizant Technology and Accenture Plc

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

Diversification Opportunities for Cognizant Technology and Accenture Plc

0.52

Correlation Coefficient

Cognizant Technology  Accenture Plc

Very weak diversification

The 3 months correlation between Cognizant and Accenture is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Accenture plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Accenture plc 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 Accenture Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Accenture plc has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Accenture Plc go up and down completely randomly.

Pair Corralation between Cognizant Technology and Accenture Plc

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 3.15 times less return on investment than Accenture Plc. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.04 times less risky than Accenture Plc. It trades about 0.08 of its potential returns per unit of risk. Accenture plc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  192,419  in Accenture plc on September 3, 2024 and sell it today you would earn a total of  25,666  from holding Accenture plc or generate 13.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Cognizant Technology Solutions  vs.  Accenture plc

Cognizant Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat 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.

Accenture plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Accenture plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Accenture Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Accenture Plc

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

The idea behind Cognizant Technology Solutions and Accenture plc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.