Correlation Between Summit Hotel and Cadence Design

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

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

Diversification Opportunities for Summit Hotel and Cadence Design

0.17

Correlation Coefficient

Summit Hotel  Cadence Design

Average diversification

The 3 months correlation between Summit and Cadence is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties 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 Summit Hotel 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 Summit Hotel Properties 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 Summit Hotel i.e., Summit Hotel and Cadence Design go up and down completely randomly.

Pair Corralation between Summit Hotel and Cadence Design

Considering the 90-day investment horizon Summit Hotel Properties is expected to under-perform the Cadence Design. But the stock apears to be less risky and, when comparing its historical volatility, Summit Hotel Properties is 1.25 times less risky than Cadence Design. The stock trades about -0.02 of its potential returns per unit of risk. The Cadence Design Systems is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  27,376  in Cadence Design Systems on September 20, 2024 and sell it today you would earn a total of  3,759  from holding Cadence Design Systems or generate 13.73% return on investment over 90 days.

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

Summit Hotel Properties  vs.  Cadence Design Systems

Summit Hotel Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Summit Hotel Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cadence Design Systems

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 7 (%) 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.

Pair Trading with Summit Hotel and Cadence Design

The main advantage of trading using opposite Summit Hotel and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Hotel 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 Summit Hotel Properties 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.