Correlation Between Cadence Design and LB Foster

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

Diversification Opportunities for Cadence Design and LB Foster

0.84

Correlation Coefficient

Cadence Design  LB Foster

Very poor diversification

The 3 months correlation between Cadence and FSTR is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster 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 LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Cadence Design i.e., Cadence Design and LB Foster go up and down completely randomly.

Pair Corralation between Cadence Design and LB Foster

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.05 times more return on investment than LB Foster. However, Cadence Design is 1.05 times more volatile than LB Foster. It trades about 0.0 of its potential returns per unit of risk. LB Foster is currently generating about -0.07 per unit of risk. If you would invest  31,010  in Cadence Design Systems on September 27, 2024 and sell it today you would lose (152.00) from holding Cadence Design Systems or give up 0.49% 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.  LB Foster

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

Modest

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 fragile basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

LB Foster

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and LB Foster

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

The idea behind Cadence Design Systems and LB Foster 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.