Correlation Between Cadence Design and Bayview Acquisition

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

Diversification Opportunities for Cadence Design and Bayview Acquisition

0.12

Correlation Coefficient

Cadence Design  Bayview Acquisition

Average diversification

The 3 months correlation between Cadence and Bayview is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Bayview Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayview Acquisition Corp 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 Bayview Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayview Acquisition Corp has no effect on the direction of Cadence Design i.e., Cadence Design and Bayview Acquisition go up and down completely randomly.

Pair Corralation between Cadence Design and Bayview Acquisition

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 4.3 times more return on investment than Bayview Acquisition. However, Cadence Design is 4.3 times more volatile than Bayview Acquisition Corp. It trades about 0.08 of its potential returns per unit of risk. Bayview Acquisition Corp is currently generating about 0.17 per unit of risk. If you would invest  26,990  in Cadence Design Systems on September 12, 2024 and sell it today you would earn a total of  3,296  from holding Cadence Design Systems or generate 12.21% return on investment over 90 days.

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

Cadence Design Systems  vs.  Bayview Acquisition Corp

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bayview Acquisition Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayview Acquisition Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Bayview Acquisition is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cadence Design and Bayview Acquisition

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

The idea behind Cadence Design Systems and Bayview Acquisition Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.