Correlation Between Cadence Design and Synopsys

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

Diversification Opportunities for Cadence Design and Synopsys

0.23

Correlation Coefficient

Cadence Design  Synopsys

Modest diversification

The 3 months correlation between Cadence and Synopsys is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Synopsys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synopsys 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 Synopsys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synopsys has no effect on the direction of Cadence Design i.e., Cadence Design and Synopsys go up and down completely randomly.

Pair Corralation between Cadence Design and Synopsys

Assuming the 90 days horizon Cadence Design Systems is expected to generate 0.88 times more return on investment than Synopsys. However, Cadence Design Systems is 1.14 times less risky than Synopsys. It trades about 0.01 of its potential returns per unit of risk. Synopsys is currently generating about 0.01 per unit of risk. If you would invest  27,900  in Cadence Design Systems on November 19, 2024 and sell it today you would earn a total of  100.00  from holding Cadence Design Systems or generate 0.36% return on investment over 90 days.

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

Cadence Design Systems  vs.  Synopsys

Cadence Design Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cadence Design is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Synopsys

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synopsys has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Synopsys is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cadence Design and Synopsys

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

The idea behind Cadence Design Systems and Synopsys 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.