Correlation Between Cadence Design and Arthur J

Can any of the company-specific risk be diversified away by investing in both Cadence Design and Arthur J 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 Arthur J 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 Arthur J Gallagher, you can compare the effects of market volatilities on Cadence Design and Arthur J 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 Arthur J. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and Arthur J.

Diversification Opportunities for Cadence Design and Arthur J

0.59

Correlation Coefficient

Cadence Design  Arthur J

Very weak diversification

The 3 months correlation between Cadence and Arthur is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Arthur J Gallagher in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arthur J Gallagher 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 Arthur J. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arthur J Gallagher has no effect on the direction of Cadence Design i.e., Cadence Design and Arthur J go up and down completely randomly.

Pair Corralation between Cadence Design and Arthur J

Given the investment horizon of 90 days Cadence Design Systems is expected to under-perform the Arthur J. In addition to that, Cadence Design is 1.43 times more volatile than Arthur J Gallagher. It trades about -0.4 of its total potential returns per unit of risk. Arthur J Gallagher is currently generating about -0.31 per unit of volatility. If you would invest  25,004  in Arthur J Gallagher on January 28, 2024 and sell it today you would lose (1,593) from holding Arthur J Gallagher or give up 6.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Cadence Design Systems  vs.  Arthur J Gallagher

Cadence Design Systems

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Cadence Design is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Arthur J Gallagher

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arthur J Gallagher are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Arthur J is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cadence Design and Arthur J

The main advantage of trading using opposite Cadence Design and Arthur J positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design position performs unexpectedly, Arthur J 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 Arthur J will offset losses from the drop in Arthur J's long position.

The idea behind Cadence Design Systems and Arthur J Gallagher 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.