Correlation Between Stepan and Cadence Design
Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Cadence Design Systems, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Cadence Design.
Diversification Opportunities for Stepan and Cadence Design
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Stepan and Cadence is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company 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 Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Cadence Design go up and down completely randomly.
Pair Corralation between Stepan and Cadence Design
Considering the 90-day investment horizon Stepan is expected to generate 3.87 times less return on investment than Cadence Design. But when comparing it to its historical volatility, Stepan Company is 1.34 times less risky than Cadence Design. It trades about 0.11 of its potential returns per unit of risk. Cadence Design Systems is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 25,277 in Cadence Design Systems on August 28, 2024 and sell it today you would earn a total of 5,962 from holding Cadence Design Systems or generate 23.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Cadence Design Systems
Performance |
| Timeline |
| Stepan Company |
| Cadence Design Systems |
Stepan and Cadence Design Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Cadence Design
The main advantage of trading using opposite Stepan and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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.| Cadence Design vs. Workday | Cadence Design vs. Salesforce | Cadence Design vs. Intuit Inc | Cadence Design vs. Snowflake |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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