Correlation Between Cognizant Technology and Broadridge Financial

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

Diversification Opportunities for Cognizant Technology and Broadridge Financial

0.38

Correlation Coefficient

Cognizant Technology  Broadridge Financial

Weak diversification

The 3 months correlation between Cognizant and Broadridge is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and Broadridge Financial Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadridge 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 Broadridge Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadridge Financial has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and Broadridge Financial go up and down completely randomly.

Pair Corralation between Cognizant Technology and Broadridge Financial

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to under-perform the Broadridge Financial. But the stock apears to be less risky and, when comparing its historical volatility, Cognizant Technology Solutions is 1.19 times less risky than Broadridge Financial. The stock trades about -0.38 of its potential returns per unit of risk. The Broadridge Financial Solutions is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  20,323  in Broadridge Financial Solutions on January 30, 2024 and sell it today you would lose (908.00) from holding Broadridge Financial Solutions or give up 4.47% of portfolio value over 90 days.

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

Cognizant Technology Solutions  vs.  Broadridge Financial Solutions

Cognizant Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cognizant Technology Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Broadridge Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadridge Financial Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Cognizant Technology and Broadridge Financial

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

The idea behind Cognizant Technology Solutions and Broadridge Financial Solutions 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.