Correlation Between Cadence Design and American Airlines
Can any of the company-specific risk be diversified away by investing in both Cadence Design and American Airlines 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 Cadence Design and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cadence Design Systems and American Airlines Group, you can compare the effects of market volatilities on Cadence Design and American Airlines 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 Cadence Design with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and American Airlines.
Diversification Opportunities for Cadence Design and American Airlines
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cadence and American is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Cadence Design 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 Cadence Design Systems are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Cadence Design i.e., Cadence Design and American Airlines go up and down completely randomly.
Pair Corralation between Cadence Design and American Airlines
Given the investment horizon of 90 days Cadence Design Systems is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Cadence Design Systems is 1.03 times less risky than American Airlines. The stock trades about -0.06 of its potential returns per unit of risk. The American Airlines Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 1,716 in American Airlines Group on October 8, 2024 and sell it today you would lose (19.00) from holding American Airlines Group or give up 1.11% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Cadence Design Systems vs. American Airlines Group
Performance |
Timeline |
Cadence Design Systems |
American Airlines |
Cadence Design and American Airlines Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cadence Design and American Airlines
The main advantage of trading using opposite Cadence Design and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.Cadence Design vs. Workday | Cadence Design vs. Salesforce | Cadence Design vs. Intuit Inc | Cadence Design vs. Snowflake |
American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. United Airlines Holdings |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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