Correlation Between Kainos Group and Cadence Design

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

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

Diversification Opportunities for Kainos Group and Cadence Design

-0.43

Correlation Coefficient

Kainos Group  Cadence Design

Very good diversification

The 3 months correlation between Kainos and Cadence is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Kainos Group plc 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 Kainos Group 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 Kainos Group plc 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 Kainos Group i.e., Kainos Group and Cadence Design go up and down completely randomly.

Pair Corralation between Kainos Group and Cadence Design

Assuming the 90 days horizon Kainos Group is expected to generate 8.1 times less return on investment than Cadence Design. In addition to that, Kainos Group is 2.39 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 0.14 per unit of volatility. If you would invest  29,433  in Cadence Design Systems on September 19, 2024 and sell it today you would earn a total of  1,702  from holding Cadence Design Systems or generate 5.78% return on investment over 90 days.

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

Kainos Group plc  vs.  Cadence Design Systems

Kainos Group plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 weak basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kainos Group and Cadence Design

The main advantage of trading using opposite Kainos Group and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kainos Group 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 Kainos Group plc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.