Correlation Between Cadence Design and Monster Beverage

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

Diversification Opportunities for Cadence Design and Monster Beverage

0.49

Correlation Coefficient

Cadence Design  Monster Beverage

Very weak diversification

The 3 months correlation between Cadence and Monster is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Monster Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage Corp 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 Monster Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monster Beverage Corp has no effect on the direction of Cadence Design i.e., Cadence Design and Monster Beverage go up and down completely randomly.

Pair Corralation between Cadence Design and Monster Beverage

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.68 times more return on investment than Monster Beverage. However, Cadence Design is 1.68 times more volatile than Monster Beverage Corp. It trades about 0.09 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.03 per unit of risk. If you would invest  27,313  in Cadence Design Systems on September 14, 2024 and sell it today you would earn a total of  3,509  from holding Cadence Design Systems or generate 12.85% return on investment over 90 days.

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

Cadence Design Systems  vs.  Monster Beverage Corp

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

OK

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

Monster Beverage Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cadence Design and Monster Beverage

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

The idea behind Cadence Design Systems and Monster Beverage Corp 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.