Cadence Design Systems Inc. (NASDAQ:CDNS)

Capital Asset Pricing Model (CAPM)

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Cadence Design Systems Inc. common stock.

Rates of Return
Variance and Covariance
Systematic Risk (β) Estimation
Expected Rate of Return

Rates of Return

Cadence Design Systems Inc., monthly rates of return

		Cadence Design Systems Inc. (CDNS)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_CDNS,t¹	Dividend_CDNS,t¹	R_CDNS,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2019	$48.03			2,704.10
1.	Feb 28, 2019	$57.25		19.20%	2,784.49	2.97%
2.	Mar 31, 2019	$63.51		10.93%	2,834.40	1.79%
3.	Apr 30, 2019	$69.38		9.24%	2,945.83	3.93%
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58.	Nov 30, 2023	$273.27		13.93%	4,567.80	8.92%
59.	Dec 31, 2023	$272.37		-0.33%	4,769.83	4.42%
Average (R):				3.34%		1.11%
Standard deviation:				8.62%		5.31%

		Cadence Design Systems Inc. (CDNS)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_CDNS,t¹	Dividend_CDNS,t¹	R_CDNS,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2019	$48.03			2,704.10
1.	Feb 28, 2019	$57.25		19.20%	2,784.49	2.97%
2.	Mar 31, 2019	$63.51		10.93%	2,834.40	1.79%
3.	Apr 30, 2019	$69.38		9.24%	2,945.83	3.93%
4.	May 31, 2019	$63.57		-8.37%	2,752.06	-6.58%
5.	Jun 30, 2019	$70.81		11.39%	2,941.76	6.89%
6.	Jul 31, 2019	$73.91		4.38%	2,980.38	1.31%
7.	Aug 31, 2019	$68.48		-7.35%	2,926.46	-1.81%
8.	Sep 30, 2019	$66.08		-3.50%	2,976.74	1.72%
9.	Oct 31, 2019	$65.35		-1.10%	3,037.56	2.04%
10.	Nov 30, 2019	$70.25		7.50%	3,140.98	3.40%
11.	Dec 31, 2019	$69.36		-1.27%	3,230.78	2.86%
12.	Jan 31, 2020	$72.11		3.96%	3,225.52	-0.16%
13.	Feb 29, 2020	$66.14		-8.28%	2,954.22	-8.41%
14.	Mar 31, 2020	$66.04		-0.15%	2,584.59	-12.51%
15.	Apr 30, 2020	$81.13		22.85%	2,912.43	12.68%
16.	May 31, 2020	$91.29		12.52%	3,044.31	4.53%
17.	Jun 30, 2020	$95.96		5.12%	3,100.29	1.84%
18.	Jul 31, 2020	$109.25		13.85%	3,271.12	5.51%
19.	Aug 31, 2020	$110.91		1.52%	3,500.31	7.01%
20.	Sep 30, 2020	$106.63		-3.86%	3,363.00	-3.92%
21.	Oct 31, 2020	$109.37		2.57%	3,269.96	-2.77%
22.	Nov 30, 2020	$116.30		6.34%	3,621.63	10.75%
23.	Dec 31, 2020	$136.43		17.31%	3,756.07	3.71%
24.	Jan 31, 2021	$130.39		-4.43%	3,714.24	-1.11%
25.	Feb 28, 2021	$141.09		8.21%	3,811.15	2.61%
26.	Mar 31, 2021	$136.99		-2.91%	3,972.89	4.24%
27.	Apr 30, 2021	$131.77		-3.81%	4,181.17	5.24%
28.	May 31, 2021	$126.99		-3.63%	4,204.11	0.55%
29.	Jun 30, 2021	$136.82		7.74%	4,297.50	2.22%
30.	Jul 31, 2021	$147.65		7.92%	4,395.26	2.27%
31.	Aug 31, 2021	$163.48		10.72%	4,522.68	2.90%
32.	Sep 30, 2021	$151.44		-7.36%	4,307.54	-4.76%
33.	Oct 31, 2021	$173.11		14.31%	4,605.38	6.91%
34.	Nov 30, 2021	$177.46		2.51%	4,567.00	-0.83%
35.	Dec 31, 2021	$186.35		5.01%	4,766.18	4.36%
36.	Jan 31, 2022	$152.14		-18.36%	4,515.55	-5.26%
37.	Feb 28, 2022	$151.43		-0.47%	4,373.94	-3.14%
38.	Mar 31, 2022	$164.46		8.60%	4,530.41	3.58%
39.	Apr 30, 2022	$150.85		-8.28%	4,131.93	-8.80%
40.	May 31, 2022	$153.73		1.91%	4,132.15	0.01%
41.	Jun 30, 2022	$150.03		-2.41%	3,785.38	-8.39%
42.	Jul 31, 2022	$186.08		24.03%	4,130.29	9.11%
43.	Aug 31, 2022	$173.77		-6.62%	3,955.00	-4.24%
44.	Sep 30, 2022	$163.43		-5.95%	3,585.62	-9.34%
45.	Oct 31, 2022	$151.39		-7.37%	3,871.98	7.99%
46.	Nov 30, 2022	$172.04		13.64%	4,080.11	5.38%
47.	Dec 31, 2022	$160.64		-6.63%	3,839.50	-5.90%
48.	Jan 31, 2023	$182.83		13.81%	4,076.60	6.18%
49.	Feb 28, 2023	$192.94		5.53%	3,970.15	-2.61%
50.	Mar 31, 2023	$210.09		8.89%	4,109.31	3.51%
51.	Apr 30, 2023	$209.45		-0.30%	4,169.48	1.46%
52.	May 31, 2023	$230.91		10.25%	4,179.83	0.25%
53.	Jun 30, 2023	$234.52		1.56%	4,376.86	4.71%
54.	Jul 31, 2023	$234.01		-0.22%	4,588.96	4.85%
55.	Aug 31, 2023	$240.44		2.75%	4,507.66	-1.77%
56.	Sep 30, 2023	$234.30		-2.55%	4,288.05	-4.87%
57.	Oct 31, 2023	$239.85		2.37%	4,193.80	-2.20%
58.	Nov 30, 2023	$273.27		13.93%	4,567.80	8.92%
59.	Dec 31, 2023	$272.37		-0.33%	4,769.83	4.42%
Average (R):				3.34%		1.11%
Standard deviation:				8.62%		5.31%

Show all

¹ Data in US$ per share of common stock, adjusted for splits and stock dividends.

² Rate of return on common stock of CDNS during period t

³ Rate of return on S&P 500 (the market portfolio proxy) during period t

Variance and Covariance

Cadence Design Systems Inc., calculation of variance and covariance of returns

t	Date	R_CDNS,t	R_{S&P 500,t}	(R_CDNS,t–R_CDNS)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_CDNS,t–R_CDNS)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 28, 2019	19.20%	2.97%	251.52	3.49	29.61
2.	Mar 31, 2019	10.93%	1.79%	57.73	0.47	5.22
3.	Apr 30, 2019	9.24%	3.93%	34.88	7.98	16.69
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58.	Nov 30, 2023	13.93%	8.92%	112.29	61.03	82.78
59.	Dec 31, 2023	-0.33%	4.42%	13.44	11.00	-12.16
Total (Σ):				4,308.49	1,634.30	1,741.35

t	Date	R_CDNS,t	R_{S&P 500,t}	(R_CDNS,t–R_CDNS)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_CDNS,t–R_CDNS)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 28, 2019	19.20%	2.97%	251.52	3.49	29.61
2.	Mar 31, 2019	10.93%	1.79%	57.73	0.47	5.22
3.	Apr 30, 2019	9.24%	3.93%	34.88	7.98	16.69
4.	May 31, 2019	-8.37%	-6.58%	137.15	59.04	89.98
5.	Jun 30, 2019	11.39%	6.89%	64.84	33.49	46.60
6.	Jul 31, 2019	4.38%	1.31%	1.08	0.04	0.22
7.	Aug 31, 2019	-7.35%	-1.81%	114.14	8.50	31.14
8.	Sep 30, 2019	-3.50%	1.72%	46.81	0.37	-4.19
9.	Oct 31, 2019	-1.10%	2.04%	19.73	0.88	-4.16
10.	Nov 30, 2019	7.50%	3.40%	17.32	5.28	9.57
11.	Dec 31, 2019	-1.27%	2.86%	21.19	3.07	-8.07
12.	Jan 31, 2020	3.96%	-0.16%	0.39	1.61	-0.80
13.	Feb 29, 2020	-8.28%	-8.41%	134.93	90.57	110.55
14.	Mar 31, 2020	-0.15%	-12.51%	12.17	185.44	47.50
15.	Apr 30, 2020	22.85%	12.68%	380.76	134.06	225.93
16.	May 31, 2020	12.52%	4.53%	84.39	11.71	31.44
17.	Jun 30, 2020	5.12%	1.84%	3.16	0.54	1.30
18.	Jul 31, 2020	13.85%	5.51%	110.52	19.40	46.30
19.	Aug 31, 2020	1.52%	7.01%	3.30	34.82	-10.72
20.	Sep 30, 2020	-3.86%	-3.92%	51.78	25.29	36.19
21.	Oct 31, 2020	2.57%	-2.77%	0.59	15.00	2.97
22.	Nov 30, 2020	6.34%	10.75%	9.00	93.10	28.94
23.	Dec 31, 2020	17.31%	3.71%	195.21	6.79	36.41
24.	Jan 31, 2021	-4.43%	-1.11%	60.28	4.93	17.23
25.	Feb 28, 2021	8.21%	2.61%	23.71	2.26	7.32
26.	Mar 31, 2021	-2.91%	4.24%	38.97	9.85	-19.59
27.	Apr 30, 2021	-3.81%	5.24%	51.08	17.11	-29.57
28.	May 31, 2021	-3.63%	0.55%	48.50	0.31	3.88
29.	Jun 30, 2021	7.74%	2.22%	19.39	1.24	4.91
30.	Jul 31, 2021	7.92%	2.27%	20.96	1.37	5.35
31.	Aug 31, 2021	10.72%	2.90%	54.53	3.22	13.24
32.	Sep 30, 2021	-7.36%	-4.76%	114.52	34.37	62.74
33.	Oct 31, 2021	14.31%	6.91%	120.40	33.74	63.73
34.	Nov 30, 2021	2.51%	-0.83%	0.68	3.76	1.60
35.	Dec 31, 2021	5.01%	4.36%	2.80	10.60	5.45
36.	Jan 31, 2022	-18.36%	-5.26%	470.66	40.51	138.07
37.	Feb 28, 2022	-0.47%	-3.14%	14.47	17.99	16.13
38.	Mar 31, 2022	8.60%	3.58%	27.75	6.11	13.02
39.	Apr 30, 2022	-8.28%	-8.80%	134.85	98.04	114.98
40.	May 31, 2022	1.91%	0.01%	2.04	1.21	1.57
41.	Jun 30, 2022	-2.41%	-8.39%	32.99	90.21	54.55
42.	Jul 31, 2022	24.03%	9.11%	428.15	64.09	165.65
43.	Aug 31, 2022	-6.62%	-4.24%	99.05	28.62	53.24
44.	Sep 30, 2022	-5.95%	-9.34%	86.25	109.11	97.01
45.	Oct 31, 2022	-7.37%	7.99%	114.57	47.34	-73.65
46.	Nov 30, 2022	13.64%	5.38%	106.16	18.23	43.99
47.	Dec 31, 2022	-6.63%	-5.90%	99.26	49.04	69.77
48.	Jan 31, 2023	13.81%	6.18%	109.76	25.70	53.11
49.	Feb 28, 2023	5.53%	-2.61%	4.81	13.82	-8.15
50.	Mar 31, 2023	8.89%	3.51%	30.82	5.76	13.32
51.	Apr 30, 2023	-0.30%	1.46%	13.26	0.13	-1.31
52.	May 31, 2023	10.25%	0.25%	47.74	0.74	-5.93
53.	Jun 30, 2023	1.56%	4.71%	3.15	13.02	-6.40
54.	Jul 31, 2023	-0.22%	4.85%	12.63	13.99	-13.29
55.	Aug 31, 2023	2.75%	-1.77%	0.35	8.28	1.69
56.	Sep 30, 2023	-2.55%	-4.87%	34.70	35.73	35.21
57.	Oct 31, 2023	2.37%	-2.20%	0.94	10.92	3.20
58.	Nov 30, 2023	13.93%	8.92%	112.29	61.03	82.78
59.	Dec 31, 2023	-0.33%	4.42%	13.44	11.00	-12.16
Total (Σ):				4,308.49	1,634.30	1,741.35

Show all

Variance_CDNS = Σ(R_CDNS,t–R_CDNS)² ÷ (59 – 1)
= 4,308.49 ÷ (59 – 1)
= 74.28

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (59 – 1)
= 1,634.30 ÷ (59 – 1)
= 28.18

Covariance_{CDNS, S&P 500} = Σ(R_CDNS,t–R_CDNS)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (59 – 1)
= 1,741.35 ÷ (59 – 1)
= 30.02

Systematic Risk (β) Estimation

Variance_CDNS	74.28
Variance_{S&P 500}	28.18
Covariance_{CDNS, S&P 500}	30.02
Correlation coefficient_{CDNS, S&P 500}¹	0.66
β_CDNS²	1.07
α_CDNS³	2.16%

Calculations

¹ Correlation coefficient_{CDNS, S&P 500}
= Covariance_{CDNS, S&P 500} ÷ (Standard deviation_CDNS × Standard deviation_{S&P 500})
= 30.02 ÷ (8.62% × 5.31%)
= 0.66

² β_CDNS
= Covariance_{CDNS, S&P 500} ÷ Variance_{S&P 500}
= 30.02 ÷ 28.18
= 1.07

³ α_CDNS
= Average_CDNS – β_CDNS × Average_{S&P 500}
= 3.34% – 1.07 × 1.11%
= 2.16%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.90%
Expected rate of return on market portfolio²	E(R_M)	13.86%
Systematic risk (β) of Cadence Design Systems Inc. common stock	β_CDNS	1.07

Expected rate of return on Cadence Design Systems Inc. common stock³	E(R_CDNS)	14.45%

¹ Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

² See details »

³ E(R_CDNS) = R_F + β_CDNS [E(R_M) – R_F]
= 4.90% + 1.07 [13.86% – 4.90%]
= 14.45%