Correlation Between Cadence Design and Scandinavian Tobacco

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

Diversification Opportunities for Cadence Design and Scandinavian Tobacco

-0.78

Correlation Coefficient

Cadence Design  Scandinavian Tobacco

Pay attention - limited upside

The 3 months correlation between Cadence and Scandinavian is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco 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 Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Cadence Design i.e., Cadence Design and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Cadence Design and Scandinavian Tobacco

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.2 times more return on investment than Scandinavian Tobacco. However, Cadence Design is 1.2 times more volatile than Scandinavian Tobacco Group. It trades about 0.07 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.03 per unit of risk. If you would invest  16,064  in Cadence Design Systems on September 20, 2024 and sell it today you would earn a total of  13,923  from holding Cadence Design Systems or generate 86.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Cadence Design Systems  vs.  Scandinavian Tobacco Group

Cadence Design Systems

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Scandinavian Tobacco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cadence Design and Scandinavian Tobacco

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

The idea behind Cadence Design Systems and Scandinavian Tobacco Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.