Correlation Between Cadence Design and Infosys

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

Diversification Opportunities for Cadence Design and Infosys

0.22

Correlation Coefficient

Cadence Design  Infosys

Modest diversification

The 3 months correlation between Cadence and Infosys is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Infosys Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Ltd ADR 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Ltd ADR has no effect on the direction of Cadence Design i.e., Cadence Design and Infosys go up and down completely randomly.

Pair Corralation between Cadence Design and Infosys

Given the investment horizon of 90 days Cadence Design is expected to generate 1.17 times less return on investment than Infosys. In addition to that, Cadence Design is 1.5 times more volatile than Infosys Ltd ADR. It trades about 0.05 of its total potential returns per unit of risk. Infosys Ltd ADR is currently generating about 0.09 per unit of volatility. If you would invest  1,587  in Infosys Ltd ADR on September 19, 2024 and sell it today you would earn a total of  678.00  from holding Infosys Ltd ADR or generate 42.72% return on investment over 90 days.

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

Cadence Design Systems  vs.  Infosys Ltd ADR

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

Infosys Ltd ADR

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Ltd ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Infosys is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cadence Design and Infosys

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

The idea behind Cadence Design Systems and Infosys Ltd ADR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.