Correlation Between Cadence Design and Fevertree Drinks

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

Diversification Opportunities for Cadence Design and Fevertree Drinks

-0.79

Correlation Coefficient

Cadence Design  Fevertree Drinks

Pay attention - limited upside

The 3 months correlation between Cadence and Fevertree is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Cadence Design i.e., Cadence Design and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Cadence Design and Fevertree Drinks

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.81 times more return on investment than Fevertree Drinks. However, Cadence Design is 1.81 times more volatile than Fevertree Drinks Plc. It trades about 0.06 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.01 per unit of risk. If you would invest  29,433  in Cadence Design Systems on September 19, 2024 and sell it today you would earn a total of  691.00  from holding Cadence Design Systems or generate 2.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Cadence Design Systems  vs.  Fevertree Drinks Plc

Cadence Design Systems

Risk-Adjusted Performance

4 of 100

Modest

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 abnormal basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Cadence Design and Fevertree Drinks

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

The idea behind Cadence Design Systems and Fevertree Drinks Plc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.