Correlation Between Cadence Design and Waste Management

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

Diversification Opportunities for Cadence Design and Waste Management

0.7

Correlation Coefficient

Cadence Design  Waste Management

Poor diversification

The 3 months correlation between Cadence and Waste is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Cadence Design i.e., Cadence Design and Waste Management go up and down completely randomly.

Pair Corralation between Cadence Design and Waste Management

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 2.38 times more return on investment than Waste Management. However, Cadence Design is 2.38 times more volatile than Waste Management. It trades about -0.02 of its potential returns per unit of risk. Waste Management is currently generating about -0.31 per unit of risk. If you would invest  30,401  in Cadence Design Systems on September 21, 2024 and sell it today you would lose (414.00) from holding Cadence Design Systems or give up 1.36% of portfolio value over 90 days.

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

Cadence Design Systems  vs.  Waste Management

Cadence Design Systems

Risk-Adjusted Performance

5 of 100

Modest

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.

Waste Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waste Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Waste Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cadence Design and Waste Management

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

The idea behind Cadence Design Systems and Waste Management 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..