Correlation Between Constellation Brands and Cadence Design

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

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

Diversification Opportunities for Constellation Brands and Cadence Design

0.29

Correlation Coefficient

Constellation Brands  Cadence Design

Modest diversification

The 3 months correlation between Constellation and Cadence is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class 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 Constellation Brands 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 Constellation Brands Class 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 Constellation Brands i.e., Constellation Brands and Cadence Design go up and down completely randomly.

Pair Corralation between Constellation Brands and Cadence Design

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Cadence Design. In addition to that, Constellation Brands is 1.12 times more volatile than Cadence Design Systems. It trades about -0.09 of its total potential returns per unit of risk. Cadence Design Systems is currently generating about -0.09 per unit of volatility. If you would invest  30,186  in Cadence Design Systems on December 30, 2024 and sell it today you would lose (4,517) from holding Cadence Design Systems or give up 14.96% of portfolio value over 90 days.

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

Constellation Brands Class  vs.  Cadence Design Systems

Constellation Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Constellation Brands and Cadence Design

The main advantage of trading using opposite Constellation Brands and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands 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 Constellation Brands Class 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.