Correlation Between Cadence Design and SCOTT TECHNOLOGY

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

Diversification Opportunities for Cadence Design and SCOTT TECHNOLOGY

0.9

Correlation Coefficient

Cadence Design  SCOTT TECHNOLOGY

Almost no diversification

The 3 months correlation between Cadence and SCOTT is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and SCOTT TECHNOLOGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCOTT TECHNOLOGY 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 SCOTT TECHNOLOGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCOTT TECHNOLOGY has no effect on the direction of Cadence Design i.e., Cadence Design and SCOTT TECHNOLOGY go up and down completely randomly.

Pair Corralation between Cadence Design and SCOTT TECHNOLOGY

Assuming the 90 days horizon Cadence Design Systems is expected to generate 1.26 times more return on investment than SCOTT TECHNOLOGY. However, Cadence Design is 1.26 times more volatile than SCOTT TECHNOLOGY. It trades about -0.14 of its potential returns per unit of risk. SCOTT TECHNOLOGY is currently generating about -0.18 per unit of risk. If you would invest  29,050  in Cadence Design Systems on December 22, 2024 and sell it today you would lose (5,815) from holding Cadence Design Systems or give up 20.02% of portfolio value over 90 days.

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

Cadence Design Systems  vs.  SCOTT TECHNOLOGY

Cadence Design Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cadence Design Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SCOTT TECHNOLOGY

Risk-Adjusted Performance

Very Weak

Over the last 90 days SCOTT TECHNOLOGY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Cadence Design and SCOTT TECHNOLOGY

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

The idea behind Cadence Design Systems and SCOTT TECHNOLOGY 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .