Correlation Between Cadence Design and Delta Air

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

Diversification Opportunities for Cadence Design and Delta Air

0.81

Correlation Coefficient

Cadence Design  Delta Air

Very poor diversification

The 3 months correlation between Cadence and Delta is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Delta Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Air Lines 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 Delta Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Air Lines has no effect on the direction of Cadence Design i.e., Cadence Design and Delta Air go up and down completely randomly.

Pair Corralation between Cadence Design and Delta Air

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 0.94 times more return on investment than Delta Air. However, Cadence Design Systems is 1.07 times less risky than Delta Air. It trades about -0.06 of its potential returns per unit of risk. Delta Air Lines is currently generating about -0.18 per unit of risk. If you would invest  30,975  in Cadence Design Systems on October 8, 2024 and sell it today you would lose (589.00) from holding Cadence Design Systems or give up 1.9% of portfolio value over 90 days.

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

Cadence Design Systems  vs.  Delta Air Lines

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 6 (%) 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.

Delta Air Lines

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Delta Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and Delta Air

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

The idea behind Cadence Design Systems and Delta Air Lines 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.