Correlation Between Cardinal Health and IPG Photonics

Can any of the company-specific risk be diversified away by investing in both Cardinal Health and IPG Photonics 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 Cardinal Health and IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cardinal Health and IPG Photonics, you can compare the effects of market volatilities on Cardinal Health and IPG Photonics 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 Cardinal Health with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cardinal Health and IPG Photonics.

Diversification Opportunities for Cardinal Health and IPG Photonics

0.24

Correlation Coefficient

Cardinal Health  IPG Photonics

Modest diversification

The 3 months correlation between Cardinal and IPG is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Cardinal Health 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 Cardinal Health are associated (or correlated) with IPG Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IPG Photonics has no effect on the direction of Cardinal Health i.e., Cardinal Health and IPG Photonics go up and down completely randomly.

Pair Corralation between Cardinal Health and IPG Photonics

Considering the 90-day investment horizon Cardinal Health is expected to generate 0.44 times more return on investment than IPG Photonics. However, Cardinal Health is 2.25 times less risky than IPG Photonics. It trades about -0.14 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.1 per unit of risk. If you would invest  12,184  in Cardinal Health on September 23, 2024 and sell it today you would lose (356.00) from holding Cardinal Health or give up 2.92% of portfolio value over 90 days.

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

Cardinal Health  vs.  IPG Photonics

Cardinal Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

IPG Photonics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, IPG Photonics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Cardinal Health and IPG Photonics

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

The idea behind Cardinal Health and IPG Photonics 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.