Correlation Between Check Point and Cadence Design

Can any of the company-specific risk be diversified away by investing in both Check Point and Cadence Design 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 Check Point and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Check Point Software and Cadence Design Systems, you can compare the effects of market volatilities on Check Point and Cadence Design 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 Check Point with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Check Point and Cadence Design.

Diversification Opportunities for Check Point and Cadence Design

-0.32

Correlation Coefficient

Check Point  Cadence Design

Very good diversification

The 3 months correlation between Check and Cadence is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Check Point Software and Cadence Design Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Design Systems and Check Point 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 Check Point Software are associated (or correlated) with Cadence Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Design Systems has no effect on the direction of Check Point i.e., Check Point and Cadence Design go up and down completely randomly.

Pair Corralation between Check Point and Cadence Design

Assuming the 90 days trading horizon Check Point Software is expected to under-perform the Cadence Design. In addition to that, Check Point is 1.09 times more volatile than Cadence Design Systems. It trades about -0.01 of its total potential returns per unit of risk. Cadence Design Systems is currently generating about 0.16 per unit of volatility. If you would invest  24,375  in Cadence Design Systems on October 8, 2024 and sell it today you would earn a total of  4,790  from holding Cadence Design Systems or generate 19.65% return on investment over 90 days.

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

Check Point Software  vs.  Cadence Design Systems

Check Point Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cadence Design Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Cadence Design reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Check Point and Cadence Design

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

The idea behind Check Point Software and Cadence Design Systems 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.