Correlation Between Cadence Design and Newpark Resources

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

Diversification Opportunities for Cadence Design and Newpark Resources

0.65

Correlation Coefficient

Cadence Design  Newpark Resources

Poor diversification

The 3 months correlation between Cadence and Newpark is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources 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 Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of Cadence Design i.e., Cadence Design and Newpark Resources go up and down completely randomly.

Pair Corralation between Cadence Design and Newpark Resources

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 0.93 times more return on investment than Newpark Resources. However, Cadence Design Systems is 1.08 times less risky than Newpark Resources. It trades about 0.0 of its potential returns per unit of risk. Newpark Resources is currently generating about -0.02 per unit of risk. If you would invest  30,933  in Cadence Design Systems on September 24, 2024 and sell it today you would lose (786.00) from holding Cadence Design Systems or give up 2.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Cadence Design Systems  vs.  Newpark Resources

Cadence Design Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Newpark Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Newpark Resources 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 Newpark Resources

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

The idea behind Cadence Design Systems and Newpark Resources 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.