Correlation Between Microsoft and Cadence Design
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cadence Design Systems, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cadence Design.
Diversification Opportunities for Microsoft and Cadence Design
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Cadence is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Cadence Design go up and down completely randomly.
Pair Corralation between Microsoft and Cadence Design
Given the investment horizon of 90 days Microsoft is expected to generate 0.42 times more return on investment than Cadence Design. However, Microsoft is 2.38 times less risky than Cadence Design. It trades about 0.28 of its potential returns per unit of risk. Cadence Design Systems is currently generating about 0.07 per unit of risk. If you would invest 42,218 in Microsoft on September 13, 2024 and sell it today you would earn a total of 2,738 from holding Microsoft or generate 6.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Microsoft vs. Cadence Design Systems
Performance |
| Timeline |
| Microsoft |
| Cadence Design Systems |
Microsoft and Cadence Design Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cadence Design
The main advantage of trading using opposite Microsoft and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Cadence Design vs. Zegona Communications Plc | Cadence Design vs. Fulcrum Metals PLC | Cadence Design vs. Power Metal Resources | Cadence Design vs. United Internet AG |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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