Correlation Between Cadence Design and MI Homes

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

Diversification Opportunities for Cadence Design and MI Homes

-0.31

Correlation Coefficient

Cadence Design  MI Homes

Very good diversification

The 3 months correlation between Cadence and MHO is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes 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 MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Cadence Design i.e., Cadence Design and MI Homes go up and down completely randomly.

Pair Corralation between Cadence Design and MI Homes

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 1.17 times more return on investment than MI Homes. However, Cadence Design is 1.17 times more volatile than MI Homes. It trades about 0.08 of its potential returns per unit of risk. MI Homes is currently generating about -0.06 per unit of risk. If you would invest  27,313  in Cadence Design Systems on September 16, 2024 and sell it today you would earn a total of  3,362  from holding Cadence Design Systems or generate 12.31% return on investment over 90 days.

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

Cadence Design Systems  vs.  MI Homes

Cadence Design Systems

Risk-Adjusted Performance

6 of 100

Modest

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 abnormal basic indicators, Cadence Design unveiled solid returns over the last few months and may actually be approaching a breakup point.

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cadence Design and MI Homes

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

The idea behind Cadence Design Systems and MI Homes 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .