Correlation Between Cadence Design and CF Industries

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

Diversification Opportunities for Cadence Design and CF Industries

0.56

Correlation Coefficient

Cadence Design  CF Industries

Very weak diversification

The 3 months correlation between Cadence and CF Industries is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of Cadence Design i.e., Cadence Design and CF Industries go up and down completely randomly.

Pair Corralation between Cadence Design and CF Industries

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.69 times more return on investment than CF Industries. However, Cadence Design is 1.69 times more volatile than CF Industries Holdings. It trades about 0.13 of its potential returns per unit of risk. CF Industries Holdings is currently generating about 0.16 per unit of risk. If you would invest  25,628  in Cadence Design Systems on September 3, 2024 and sell it today you would earn a total of  5,399  from holding Cadence Design Systems or generate 21.07% return on investment over 90 days.

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

Cadence Design Systems  vs.  CF Industries Holdings

Cadence Design Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

CF Industries Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Industries Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CF Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and CF Industries

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

The idea behind Cadence Design Systems and CF Industries Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.