Correlation Between Cadence Design and NetSol Technologies

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

Diversification Opportunities for Cadence Design and NetSol Technologies

-0.24

Correlation Coefficient

Cadence Design  NetSol Technologies

Very good diversification

The 3 months correlation between Cadence and NetSol is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies 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 NetSol Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetSol Technologies has no effect on the direction of Cadence Design i.e., Cadence Design and NetSol Technologies go up and down completely randomly.

Pair Corralation between Cadence Design and NetSol Technologies

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.06 times more return on investment than NetSol Technologies. However, Cadence Design is 1.06 times more volatile than NetSol Technologies. It trades about 0.14 of its potential returns per unit of risk. NetSol Technologies is currently generating about 0.0 per unit of risk. If you would invest  25,413  in Cadence Design Systems on September 4, 2024 and sell it today you would earn a total of  5,614  from holding Cadence Design Systems or generate 22.09% return on investment over 90 days.

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

Cadence Design Systems  vs.  NetSol Technologies

Cadence Design Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

NetSol Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetSol Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, NetSol Technologies is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Cadence Design and NetSol Technologies

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

The idea behind Cadence Design Systems and NetSol Technologies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.