Correlation Between Cadence Design and KT

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

Diversification Opportunities for Cadence Design and KT

0.57

Correlation Coefficient

Cadence Design  KT

Very weak diversification

The 3 months correlation between Cadence and KT is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and KT Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KT Corporation 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 KT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KT Corporation has no effect on the direction of Cadence Design i.e., Cadence Design and KT go up and down completely randomly.

Pair Corralation between Cadence Design and KT

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.04 times more return on investment than KT. However, Cadence Design is 1.04 times more volatile than KT Corporation. It trades about -0.02 of its potential returns per unit of risk. KT Corporation is currently generating about -0.11 per unit of risk. If you would invest  31,239  in Cadence Design Systems on September 25, 2024 and sell it today you would lose (381.00) from holding Cadence Design Systems or give up 1.22% of portfolio value over 90 days.

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

Cadence Design Systems  vs.  KT Corp.

Cadence Design Systems

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 7 (%) 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.

KT Corporation

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KT Corporation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, KT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cadence Design and KT

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

The idea behind Cadence Design Systems and KT Corporation 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.