Correlation Between SCOTT TECHNOLOGY and Cadence Design

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

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

Diversification Opportunities for SCOTT TECHNOLOGY and Cadence Design

0.9

Correlation Coefficient

SCOTT TECHNOLOGY  Cadence Design

Almost no diversification

The 3 months correlation between SCOTT and Cadence is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding SCOTT TECHNOLOGY 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 SCOTT TECHNOLOGY 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 SCOTT TECHNOLOGY 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 SCOTT TECHNOLOGY i.e., SCOTT TECHNOLOGY and Cadence Design go up and down completely randomly.

Pair Corralation between SCOTT TECHNOLOGY and Cadence Design

Assuming the 90 days trading horizon SCOTT TECHNOLOGY is expected to under-perform the Cadence Design. But the stock apears to be less risky and, when comparing its historical volatility, SCOTT TECHNOLOGY is 1.26 times less risky than Cadence Design. The stock trades about -0.18 of its potential returns per unit of risk. The Cadence Design Systems is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  29,050  in Cadence Design Systems on December 22, 2024 and sell it today you would lose (5,815) from holding Cadence Design Systems or give up 20.02% of portfolio value over 90 days.

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

SCOTT TECHNOLOGY  vs.  Cadence Design Systems

SCOTT TECHNOLOGY

Risk-Adjusted Performance

Very Weak

Over the last 90 days SCOTT TECHNOLOGY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Cadence Design Systems

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SCOTT TECHNOLOGY and Cadence Design

The main advantage of trading using opposite SCOTT TECHNOLOGY and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SCOTT TECHNOLOGY 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 SCOTT TECHNOLOGY 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.