Correlation Between Cadence Design and NextTrip
Can any of the company-specific risk be diversified away by investing in both Cadence Design and NextTrip 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 NextTrip 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 NextTrip, you can compare the effects of market volatilities on Cadence Design and NextTrip 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 NextTrip. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and NextTrip.
Diversification Opportunities for Cadence Design and NextTrip
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cadence and NextTrip is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and NextTrip in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextTrip 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 NextTrip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextTrip has no effect on the direction of Cadence Design i.e., Cadence Design and NextTrip go up and down completely randomly.
Pair Corralation between Cadence Design and NextTrip
Given the investment horizon of 90 days Cadence Design Systems is expected to under-perform the NextTrip. But the stock apears to be less risky and, when comparing its historical volatility, Cadence Design Systems is 3.16 times less risky than NextTrip. The stock trades about -0.09 of its potential returns per unit of risk. The NextTrip is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 632.00 in NextTrip on December 29, 2024 and sell it today you would lose (79.00) from holding NextTrip or give up 12.5% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Cadence Design Systems vs. NextTrip
Performance |
Timeline |
Cadence Design Systems |
NextTrip |
Cadence Design and NextTrip Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cadence Design and NextTrip
The main advantage of trading using opposite Cadence Design and NextTrip positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design position performs unexpectedly, NextTrip 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 NextTrip will offset losses from the drop in NextTrip's long position.Cadence Design vs. Autodesk | Cadence Design vs. ServiceNow | Cadence Design vs. Workday | Cadence Design vs. Roper Technologies, |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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