Correlation Between Cognizant Technology and Equinix

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

Diversification Opportunities for Cognizant Technology and Equinix

0.54

Correlation Coefficient

Cognizant Technology  Equinix

Very weak diversification

The 3 months correlation between Cognizant and Equinix is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Equinix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinix 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 Equinix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinix has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Equinix go up and down completely randomly.

Pair Corralation between Cognizant Technology and Equinix

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 16.86 times less return on investment than Equinix. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.43 times less risky than Equinix. It trades about 0.03 of its potential returns per unit of risk. Equinix is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,970  in Equinix on September 27, 2024 and sell it today you would earn a total of  1,317  from holding Equinix or generate 22.06% 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.  Equinix

Cognizant Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 2 (%) 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.

Equinix

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equinix are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain forward indicators, Equinix sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Equinix

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

The idea behind Cognizant Technology Solutions and Equinix 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.