Correlation Between Cadence Design and Ingredion Incorporated

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

Diversification Opportunities for Cadence Design and Ingredion Incorporated

0.63

Correlation Coefficient

Cadence Design  Ingredion Incorporated

Poor diversification

The 3 months correlation between Cadence and Ingredion is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Ingredion Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ingredion Incorporated 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 Ingredion Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ingredion Incorporated has no effect on the direction of Cadence Design i.e., Cadence Design and Ingredion Incorporated go up and down completely randomly.

Pair Corralation between Cadence Design and Ingredion Incorporated

Given the investment horizon of 90 days Cadence Design is expected to generate 4.51 times less return on investment than Ingredion Incorporated. In addition to that, Cadence Design is 1.44 times more volatile than Ingredion Incorporated. It trades about 0.01 of its total potential returns per unit of risk. Ingredion Incorporated is currently generating about 0.08 per unit of volatility. If you would invest  10,811  in Ingredion Incorporated on October 12, 2024 and sell it today you would earn a total of  2,540  from holding Ingredion Incorporated or generate 23.49% return on investment over 90 days.

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

Cadence Design Systems  vs.  Ingredion Incorporated

Cadence Design Systems

Risk-Adjusted Performance

4 of 100

Insignificant

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 February 2025.

Ingredion Incorporated

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Ingredion Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Ingredion Incorporated is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Cadence Design and Ingredion Incorporated

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

The idea behind Cadence Design Systems and Ingredion Incorporated 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.