Correlation Between Cognizant Technology and EPAM Systems

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

Diversification Opportunities for Cognizant Technology and EPAM Systems

0.92

Correlation Coefficient

Cognizant Technology  EPAM Systems

Almost no diversification

The 3 months correlation between Cognizant and EPAM is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Cognizant Technology Solutions and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems 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 EPAM Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPAM Systems has no effect on the direction of Cognizant Technology i.e., Cognizant Technology and EPAM Systems go up and down completely randomly.

Pair Corralation between Cognizant Technology and EPAM Systems

Given the investment horizon of 90 days Cognizant Technology Solutions is expected to generate 0.51 times more return on investment than EPAM Systems. However, Cognizant Technology Solutions is 1.95 times less risky than EPAM Systems. It trades about 0.05 of its potential returns per unit of risk. EPAM Systems is currently generating about -0.01 per unit of risk. If you would invest  6,074  in Cognizant Technology Solutions on February 15, 2025 and sell it today you would earn a total of  2,068  from holding Cognizant Technology Solutions or generate 34.05% return on investment over 90 days.

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

Cognizant Technology Solutions  vs.  EPAM Systems

Cognizant Technology

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

EPAM Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days EPAM Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Cognizant Technology and EPAM Systems

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

The idea behind Cognizant Technology Solutions and EPAM Systems 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.