Correlation Between Cadence Design and GENERAL

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

Diversification Opportunities for Cadence Design and GENERAL

0.49

Correlation Coefficient

Cadence Design  GENERAL

Very weak diversification

The 3 months correlation between Cadence and GENERAL is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Cadence Design i.e., Cadence Design and GENERAL go up and down completely randomly.

Pair Corralation between Cadence Design and GENERAL

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 3.78 times more return on investment than GENERAL. However, Cadence Design is 3.78 times more volatile than GENERAL ELEC CAP. It trades about 0.18 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about -0.06 per unit of risk. If you would invest  25,277  in Cadence Design Systems on October 26, 2024 and sell it today you would earn a total of  7,175  from holding Cadence Design Systems or generate 28.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	37.29%
Values	Daily Returns

Cadence Design Systems  vs.  GENERAL ELEC CAP

Cadence Design Systems

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 14 (%) 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.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cadence Design and GENERAL

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

The idea behind Cadence Design Systems and GENERAL ELEC CAP 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.