Correlation Between Cadence Design and SL Green
Can any of the company-specific risk be diversified away by investing in both Cadence Design and SL Green 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 SL Green 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 SL Green Realty, you can compare the effects of market volatilities on Cadence Design and SL Green 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 SL Green. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and SL Green.
Diversification Opportunities for Cadence Design and SL Green
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cadence and SLG is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and SL Green Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SL Green Realty 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 SL Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SL Green Realty has no effect on the direction of Cadence Design i.e., Cadence Design and SL Green go up and down completely randomly.
Pair Corralation between Cadence Design and SL Green
Given the investment horizon of 90 days Cadence Design is expected to generate 3.15 times less return on investment than SL Green. But when comparing it to its historical volatility, Cadence Design Systems is 1.59 times less risky than SL Green. It trades about 0.06 of its potential returns per unit of risk. SL Green Realty is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,026 in SL Green Realty on August 27, 2024 and sell it today you would earn a total of 5,937 from holding SL Green Realty or generate 293.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cadence Design Systems vs. SL Green Realty
Performance |
| Timeline |
| Cadence Design Systems |
| SL Green Realty |
Cadence Design and SL Green Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cadence Design and SL Green
The main advantage of trading using opposite Cadence Design and SL Green positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design position performs unexpectedly, SL Green 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 SL Green will offset losses from the drop in SL Green's long position.The idea behind Cadence Design Systems and SL Green Realty 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.| SL Green vs. Boston Properties | SL Green vs. Douglas Emmett | SL Green vs. Kilroy Realty Corp | SL Green vs. Alexandria Real Estate |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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