Correlation Between Adobe Systems and Cadence Design

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Can any of the company-specific risk be diversified away by investing in both Adobe Systems 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 Adobe Systems and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adobe Systems Incorporated and Cadence Design Systems, you can compare the effects of market volatilities on Adobe Systems 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 Adobe Systems with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adobe Systems and Cadence Design.

Diversification Opportunities for Adobe Systems and Cadence Design

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between Adobe and Cadence is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Adobe Systems Incorporated 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 Adobe Systems 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 Adobe Systems Incorporated 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 Adobe Systems i.e., Adobe Systems and Cadence Design go up and down completely randomly.

Pair Corralation between Adobe Systems and Cadence Design

Given the investment horizon of 90 days Adobe Systems is expected to generate 2.59 times less return on investment than Cadence Design. In addition to that, Adobe Systems is 1.22 times more volatile than Cadence Design Systems. It trades about 0.03 of its total potential returns per unit of risk. Cadence Design Systems is currently generating about 0.08 per unit of volatility. If you would invest  16,227  in Cadence Design Systems on December 29, 2023 and sell it today you would earn a total of  14,870  from holding Cadence Design Systems or generate 91.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.78%
ValuesDaily Returns

Adobe Systems Incorporated  vs.  Cadence Design Systems

 Performance 
       Timeline  
Adobe Systems rporated 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Cadence Design Systems 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

Adobe Systems and Cadence Design Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Adobe Systems and Cadence Design

The main advantage of trading using opposite Adobe Systems and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adobe Systems 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 Adobe Systems Incorporated 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.
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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