Correlation Between Royalty Management and Cadence Design

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

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

Diversification Opportunities for Royalty Management and Cadence Design

-0.28

Correlation Coefficient

Royalty Management  Cadence Design

Very good diversification

The 3 months correlation between Royalty and Cadence is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Management 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 Royalty Management 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 Royalty Management 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 Royalty Management i.e., Royalty Management and Cadence Design go up and down completely randomly.

Pair Corralation between Royalty Management and Cadence Design

Assuming the 90 days horizon Royalty Management Holding is expected to generate 17.54 times more return on investment than Cadence Design. However, Royalty Management is 17.54 times more volatile than Cadence Design Systems. It trades about 0.12 of its potential returns per unit of risk. Cadence Design Systems is currently generating about 0.06 per unit of risk. If you would invest  6.00  in Royalty Management Holding on October 23, 2024 and sell it today you would lose (4.12) from holding Royalty Management Holding or give up 68.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	33.74%
Values	Daily Returns

Royalty Management Holding  vs.  Cadence Design Systems

Royalty Management

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Royalty Management Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, Royalty Management showed solid returns over the last few months and may actually be approaching a breakup point.

Cadence Design Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royalty Management and Cadence Design

The main advantage of trading using opposite Royalty Management and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Management 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 Royalty Management 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..