Correlation Between Cadence Design and Dassault Systemes

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

Diversification Opportunities for Cadence Design and Dassault Systemes

0.08

Correlation Coefficient

Cadence Design  Dassault Systemes

Significant diversification

The 3 months correlation between Cadence and Dassault is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Dassault Systemes SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dassault Systemes 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 Dassault Systemes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dassault Systemes has no effect on the direction of Cadence Design i.e., Cadence Design and Dassault Systemes go up and down completely randomly.

Pair Corralation between Cadence Design and Dassault Systemes

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 0.89 times more return on investment than Dassault Systemes. However, Cadence Design Systems is 1.12 times less risky than Dassault Systemes. It trades about -0.15 of its potential returns per unit of risk. Dassault Systemes SE is currently generating about -0.18 per unit of risk. If you would invest  31,524  in Cadence Design Systems on January 31, 2024 and sell it today you would lose (3,275) from holding Cadence Design Systems or give up 10.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cadence Design Systems  vs.  Dassault Systemes SE

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

Dassault Systemes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dassault Systemes SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Cadence Design and Dassault Systemes

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

The idea behind Cadence Design Systems and Dassault Systemes SE 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.