Correlation Between Cognizant Technology and Mitsubishi UFJ

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

Diversification Opportunities for Cognizant Technology and Mitsubishi UFJ

0.47

Correlation Coefficient

Cognizant Technology  Mitsubishi UFJ

Very weak diversification

The 3 months correlation between Cognizant and Mitsubishi is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Mitsubishi UFJ Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi UFJ Financial 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 Mitsubishi UFJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi UFJ Financial has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Mitsubishi UFJ go up and down completely randomly.

Pair Corralation between Cognizant Technology and Mitsubishi UFJ

Assuming the 90 days trading horizon Cognizant Technology is expected to generate 21.34 times less return on investment than Mitsubishi UFJ. But when comparing it to its historical volatility, Cognizant Technology Solutions is 2.31 times less risky than Mitsubishi UFJ. It trades about 0.02 of its potential returns per unit of risk. Mitsubishi UFJ Financial is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  5,676  in Mitsubishi UFJ Financial on September 7, 2024 and sell it today you would earn a total of  1,604  from holding Mitsubishi UFJ Financial or generate 28.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Cognizant Technology Solutions  vs.  Mitsubishi UFJ Financial

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.

Mitsubishi UFJ Financial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mitsubishi UFJ sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognizant Technology and Mitsubishi UFJ

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

The idea behind Cognizant Technology Solutions and Mitsubishi UFJ Financial 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.