Correlation Between Cadence Design and Emerson Electric

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

Diversification Opportunities for Cadence Design and Emerson Electric

0.89

Correlation Coefficient

Cadence Design  Emerson Electric

Very poor diversification

The 3 months correlation between Cadence and Emerson is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric 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 Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of Cadence Design i.e., Cadence Design and Emerson Electric go up and down completely randomly.

Pair Corralation between Cadence Design and Emerson Electric

Given the investment horizon of 90 days Cadence Design is expected to generate 12.15 times less return on investment than Emerson Electric. In addition to that, Cadence Design is 1.41 times more volatile than Emerson Electric. It trades about 0.0 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.08 per unit of volatility. If you would invest  10,515  in Emerson Electric on September 24, 2024 and sell it today you would earn a total of  1,894  from holding Emerson Electric or generate 18.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Cadence Design Systems  vs.  Emerson Electric

Cadence Design Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Emerson Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and Emerson Electric

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

The idea behind Cadence Design Systems and Emerson Electric 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.