Correlation Between Cadence Design and Connecticut Light

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

Diversification Opportunities for Cadence Design and Connecticut Light

-0.63

Correlation Coefficient

Cadence Design  Connecticut Light

Excellent diversification

The 3 months correlation between Cadence and Connecticut is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light 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 Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Cadence Design i.e., Cadence Design and Connecticut Light go up and down completely randomly.

Pair Corralation between Cadence Design and Connecticut Light

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.44 times more return on investment than Connecticut Light. However, Cadence Design is 1.44 times more volatile than The Connecticut Light. It trades about 0.06 of its potential returns per unit of risk. The Connecticut Light is currently generating about -0.07 per unit of risk. If you would invest  28,239  in Cadence Design Systems on October 11, 2024 and sell it today you would earn a total of  2,034  from holding Cadence Design Systems or generate 7.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Cadence Design Systems  vs.  The Connecticut Light

Cadence Design Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cadence Design and Connecticut Light

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

The idea behind Cadence Design Systems and The Connecticut Light 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.