Correlation Between Eltek and IPG Photonics

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

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

Diversification Opportunities for Eltek and IPG Photonics

-0.05

Correlation Coefficient

Eltek  IPG Photonics

Good diversification

The 3 months correlation between Eltek and IPG is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Eltek and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Eltek 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 Eltek 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 Eltek i.e., Eltek and IPG Photonics go up and down completely randomly.

Pair Corralation between Eltek and IPG Photonics

Given the investment horizon of 90 days Eltek is expected to under-perform the IPG Photonics. In addition to that, Eltek is 1.48 times more volatile than IPG Photonics. It trades about -0.09 of its total potential returns per unit of risk. IPG Photonics is currently generating about 0.06 per unit of volatility. If you would invest  7,352  in IPG Photonics on September 21, 2024 and sell it today you would earn a total of  183.00  from holding IPG Photonics or generate 2.49% return on investment over 90 days.

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

Eltek  vs.  IPG Photonics

Eltek

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eltek are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Eltek is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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 weak technical and fundamental indicators, IPG Photonics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eltek and IPG Photonics

The main advantage of trading using opposite Eltek and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eltek 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 Eltek 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.