Correlation Between Cadence Design and Shui On

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

Diversification Opportunities for Cadence Design and Shui On

0.6

Correlation Coefficient

Cadence Design  Shui On

Poor diversification

The 3 months correlation between Cadence and Shui is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Shui On Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shui On Land 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 Shui On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shui On Land has no effect on the direction of Cadence Design i.e., Cadence Design and Shui On go up and down completely randomly.

Pair Corralation between Cadence Design and Shui On

Given the investment horizon of 90 days Cadence Design is expected to generate 12.76 times less return on investment than Shui On. But when comparing it to its historical volatility, Cadence Design Systems is 13.15 times less risky than Shui On. It trades about 0.06 of its potential returns per unit of risk. Shui On Land is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Shui On Land on October 24, 2024 and sell it today you would lose (6.00) from holding Shui On Land or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	25.91%
Values	Daily Returns

Cadence Design Systems  vs.  Shui On Land

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.

Shui On Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shui On Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Shui On is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cadence Design and Shui On

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

The idea behind Cadence Design Systems and Shui On Land 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.