Correlation Between Cadence Design and Playa Hotels

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

Diversification Opportunities for Cadence Design and Playa Hotels

0.65

Correlation Coefficient

Cadence Design  Playa Hotels

Poor diversification

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

Pair Corralation between Cadence Design and Playa Hotels

Given the investment horizon of 90 days Cadence Design Systems is expected to under-perform the Playa Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Cadence Design Systems is 4.74 times less risky than Playa Hotels. The stock trades about -0.06 of its potential returns per unit of risk. The Playa Hotels Resorts is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  988.00  in Playa Hotels Resorts on October 8, 2024 and sell it today you would earn a total of  278.00  from holding Playa Hotels Resorts or generate 28.14% 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.  Playa Hotels Resorts

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

Playa Hotels Resorts

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and Playa Hotels

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

The idea behind Cadence Design Systems and Playa Hotels Resorts 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.