Correlation Between Aspen Technology and Cadence Design

Can any of the company-specific risk be diversified away by investing in both Aspen Technology and Cadence Design 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 Aspen Technology and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aspen Technology and Cadence Design Systems, you can compare the effects of market volatilities on Aspen Technology and Cadence Design 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 Aspen Technology with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Technology and Cadence Design.

Diversification Opportunities for Aspen Technology and Cadence Design

0.88

Correlation Coefficient

Aspen Technology  Cadence Design

Very poor diversification

The 3 months correlation between Aspen and Cadence is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology and Cadence Design Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Design Systems and Aspen 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 Aspen Technology are associated (or correlated) with Cadence Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Design Systems has no effect on the direction of Aspen Technology i.e., Aspen Technology and Cadence Design go up and down completely randomly.

Pair Corralation between Aspen Technology and Cadence Design

Given the investment horizon of 90 days Aspen Technology is expected to generate 1.93 times less return on investment than Cadence Design. In addition to that, Aspen Technology is 1.15 times more volatile than Cadence Design Systems. It trades about 0.03 of its total potential returns per unit of risk. Cadence Design Systems is currently generating about 0.06 per unit of volatility. If you would invest  18,570  in Cadence Design Systems on October 3, 2024 and sell it today you would earn a total of  11,476  from holding Cadence Design Systems or generate 61.8% return on investment over 90 days.

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

Aspen Technology  vs.  Cadence Design Systems

Aspen Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Aspen Technology is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cadence Design Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aspen Technology and Cadence Design

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

The idea behind Aspen Technology and Cadence Design 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.