Correlation Between Snowflake and Cadence Design

Can any of the company-specific risk be diversified away by investing in both Snowflake 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 Snowflake and Cadence Design into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Snowflake and Cadence Design Systems, you can compare the effects of market volatilities on Snowflake 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 Snowflake with a short position of Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Snowflake and Cadence Design.

Diversification Opportunities for Snowflake and Cadence Design

-0.33

Correlation Coefficient

Snowflake  Cadence Design

Very good diversification

The 3 months correlation between Snowflake and Cadence is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Snowflake 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 Snowflake 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 Snowflake 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 Snowflake i.e., Snowflake and Cadence Design go up and down completely randomly.

Pair Corralation between Snowflake and Cadence Design

Given the investment horizon of 90 days Snowflake is expected to generate 1.33 times more return on investment than Cadence Design. However, Snowflake is 1.33 times more volatile than Cadence Design Systems. It trades about -0.19 of its potential returns per unit of risk. Cadence Design Systems is currently generating about -0.36 per unit of risk. If you would invest  15,814  in Snowflake on January 24, 2024 and sell it today you would lose (1,093) from holding Snowflake or give up 6.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Snowflake  vs.  Cadence Design Systems

Snowflake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Snowflake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Snowflake and Cadence Design

The main advantage of trading using opposite Snowflake and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snowflake 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 Snowflake 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.