Correlation Between Cognizant Technology and EOG Resources

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

Diversification Opportunities for Cognizant Technology and EOG Resources

0.51

Correlation Coefficient

Cognizant Technology  EOG Resources

Very weak diversification

The 3 months correlation between Cognizant and EOG is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources 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 EOG Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EOG Resources has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and EOG Resources go up and down completely randomly.

Pair Corralation between Cognizant Technology and EOG Resources

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 9.33 times less return on investment than EOG Resources. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.59 times less risky than EOG Resources. It trades about 0.03 of its potential returns per unit of risk. EOG Resources is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  34,136  in EOG Resources on September 24, 2024 and sell it today you would earn a total of  3,750  from holding EOG Resources or generate 10.99% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  EOG Resources

Cognizant Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 1 (%) 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.

EOG Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EOG Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cognizant Technology and EOG Resources

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

The idea behind Cognizant Technology Solutions and EOG Resources 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.