Correlation Between Cadence Design and HEALTHSTREAM (HL5SG)

Can any of the company-specific risk be diversified away by investing in both Cadence Design and HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM, you can compare the effects of market volatilities on Cadence Design and HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG). Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and HEALTHSTREAM (HL5SG).

Diversification Opportunities for Cadence Design and HEALTHSTREAM (HL5SG)

0.75

Correlation Coefficient

Cadence Design  HEALTHSTREAM (HL5SG)

Poor diversification

The 3 months correlation between Cadence and HEALTHSTREAM is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and HEALTHSTREAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEALTHSTREAM (HL5SG) has no effect on the direction of Cadence Design i.e., Cadence Design and HEALTHSTREAM (HL5SG) go up and down completely randomly.

Pair Corralation between Cadence Design and HEALTHSTREAM (HL5SG)

Assuming the 90 days horizon Cadence Design Systems is expected to generate 1.17 times more return on investment than HEALTHSTREAM (HL5SG). However, Cadence Design is 1.17 times more volatile than HEALTHSTREAM. It trades about 0.17 of its potential returns per unit of risk. HEALTHSTREAM is currently generating about 0.17 per unit of risk. If you would invest  23,930  in Cadence Design Systems on October 7, 2024 and sell it today you would earn a total of  5,235  from holding Cadence Design Systems or generate 21.88% 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.  HEALTHSTREAM

Cadence Design Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Cadence Design reported solid returns over the last few months and may actually be approaching a breakup point.

HEALTHSTREAM (HL5SG)

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HEALTHSTREAM are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HEALTHSTREAM (HL5SG) unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and HEALTHSTREAM (HL5SG)

The main advantage of trading using opposite Cadence Design and HEALTHSTREAM (HL5SG) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design position performs unexpectedly, HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG) will offset losses from the drop in HEALTHSTREAM (HL5SG)'s long position.

The idea behind Cadence Design Systems and HEALTHSTREAM 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.