A cosine wave encoded joint transform correlation is proposed that can deliver excellent correlation performance in the presence of nonoverlapping noise or additive noise, and guarantee that the optical gain is less than unity—facilitating implementation. The method proposed uses three CCDs to capture the power spectra of the joint image, the reference-only image, and the input scene, and then extracts the cosine wave information of the joint power spectrum using simple subtraction and division operations. The extracted cosine wave information is encoded onto the input SLM of the second optical setup, resulting in a high optical efficiency. The cosine wave encoded joint transform correlation is found to be similar to even-function correlations between the phase-only Fourier-plane information of the reference and input images, which resembles the correlation of the phase-only input scene information with the phase-only filter using a reference image in the VanderLugt correlation arrangement. Computer simulations show that the cosine wave encoded joint transform correlation outperforms binary joint transform correlation when the targets are embedded in either nonoverlapping noise or scenes with additive noise; performance is maintained even when the target has a very low light contrast ratio in a severely noise-corrupted input scene.