Correlation Between Cadence Design and GMS
Can any of the company-specific risk be diversified away by investing in both Cadence Design and GMS 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 Cadence Design and GMS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cadence Design Systems and GMS Inc, you can compare the effects of market volatilities on Cadence Design and GMS 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 Cadence Design with a short position of GMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and GMS.
Diversification Opportunities for Cadence Design and GMS
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cadence and GMS is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc and Cadence Design 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 Cadence Design Systems are associated (or correlated) with GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Cadence Design i.e., Cadence Design and GMS go up and down completely randomly.
Pair Corralation between Cadence Design and GMS
Given the investment horizon of 90 days Cadence Design is expected to generate 1.05 times less return on investment than GMS. But when comparing it to its historical volatility, Cadence Design Systems is 1.12 times less risky than GMS. It trades about 0.3 of its potential returns per unit of risk. GMS Inc is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 8,989 in GMS Inc on September 1, 2024 and sell it today you would earn a total of 1,046 from holding GMS Inc or generate 11.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cadence Design Systems vs. GMS Inc
Performance |
| Timeline |
| Cadence Design Systems |
| GMS Inc |
Cadence Design and GMS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cadence Design and GMS
The main advantage of trading using opposite Cadence Design and GMS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design position performs unexpectedly, GMS 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 GMS will offset losses from the drop in GMS's long position.| Cadence Design vs. Workday | Cadence Design vs. Salesforce | Cadence Design vs. Intuit Inc | Cadence Design vs. Snowflake |
| GMS vs. Quanex Building Products | GMS vs. Apogee Enterprises | GMS vs. Azek Company | GMS vs. Beacon Roofing Supply |
Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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