Correlation Between Cadence Design and ODDITY Tech

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

Diversification Opportunities for Cadence Design and ODDITY Tech

0.76

Correlation Coefficient

Cadence Design  ODDITY Tech

Poor diversification

The 3 months correlation between Cadence and ODDITY is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and ODDITY Tech Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ODDITY Tech 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 ODDITY Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ODDITY Tech has no effect on the direction of Cadence Design i.e., Cadence Design and ODDITY Tech go up and down completely randomly.

Pair Corralation between Cadence Design and ODDITY Tech

Given the investment horizon of 90 days Cadence Design is expected to generate 2.37 times less return on investment than ODDITY Tech. But when comparing it to its historical volatility, Cadence Design Systems is 1.21 times less risky than ODDITY Tech. It trades about 0.09 of its potential returns per unit of risk. ODDITY Tech Ltd is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,514  in ODDITY Tech Ltd on September 13, 2024 and sell it today you would earn a total of  1,237  from holding ODDITY Tech Ltd or generate 35.2% return on investment over 90 days.

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

Cadence Design Systems  vs.  ODDITY Tech Ltd

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

Modest

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

ODDITY Tech

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ODDITY Tech Ltd are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, ODDITY Tech exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and ODDITY Tech

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

The idea behind Cadence Design Systems and ODDITY Tech Ltd 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.