Can any of the company-specific risk be diversified away by investing in both Cadence Design and Blackbaud 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 Blackbaud 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 Blackbaud, you can compare the effects of market volatilities on Cadence Design and Blackbaud 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 Blackbaud. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadence Design and Blackbaud.
Diversification Opportunities for Cadence Design and Blackbaud
The 3 months correlation between Cadence and Blackbaud is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Blackbaud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackbaud 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 Blackbaud. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackbaud has no effect on the direction of Cadence Design i.e., Cadence Design and Blackbaud go up and down completely randomly.
Pair Corralation between Cadence Design and Blackbaud
Given the investment horizon of 90 days Cadence Design Systems is expected to under-perform the Blackbaud. But the stock apears to be less risky and, when comparing its historical volatility, Cadence Design Systems is 1.07 times less risky than Blackbaud. The stock trades about -0.09 of its potential returns per unit of risk. The Blackbaud is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 7,287 in Blackbaud on March 6, 2024 and sell it today you would earn a total of 607.00 from holding Blackbaud or generate 8.33% return on investment over 90 days.
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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Blackbaud are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal forward-looking signals, Blackbaud may actually be approaching a critical reversion point that can send shares even higher in July 2024.