Correlation Between Grocery Outlet and Cadence Design

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

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

Diversification Opportunities for Grocery Outlet and Cadence Design

0.6

Correlation Coefficient

Grocery Outlet  Cadence Design

Poor diversification

The 3 months correlation between Grocery and Cadence is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Grocery Outlet Holding 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 Grocery Outlet 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 Grocery Outlet Holding 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 Grocery Outlet i.e., Grocery Outlet and Cadence Design go up and down completely randomly.

Pair Corralation between Grocery Outlet and Cadence Design

Allowing for the 90-day total investment horizon Grocery Outlet Holding is expected to under-perform the Cadence Design. In addition to that, Grocery Outlet is 1.38 times more volatile than Cadence Design Systems. It trades about -0.45 of its total potential returns per unit of risk. Cadence Design Systems is currently generating about -0.05 per unit of volatility. If you would invest  31,239  in Cadence Design Systems on September 24, 2024 and sell it today you would lose (798.00) from holding Cadence Design Systems or give up 2.55% of portfolio value over 90 days.

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

Grocery Outlet Holding  vs.  Cadence Design Systems

Grocery Outlet Holding

Risk-Adjusted Performance

0 of 100

Weak

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

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Grocery Outlet and Cadence Design

The main advantage of trading using opposite Grocery Outlet and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grocery Outlet 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 Grocery Outlet Holding 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.