Correlation Between IPG Photonics and BRP

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

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

Diversification Opportunities for IPG Photonics and BRP

-0.47

Correlation Coefficient

IPG Photonics  BRP

Very good diversification

The 3 months correlation between IPG and BRP is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and BRP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRP Inc and IPG Photonics 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 IPG Photonics are associated (or correlated) with BRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRP Inc has no effect on the direction of IPG Photonics i.e., IPG Photonics and BRP go up and down completely randomly.

Pair Corralation between IPG Photonics and BRP

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the BRP. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 1.08 times less risky than BRP. The stock trades about -0.01 of its potential returns per unit of risk. The BRP Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,756  in BRP Inc on September 27, 2024 and sell it today you would earn a total of  292.00  from holding BRP Inc or generate 6.14% return on investment over 90 days.

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

IPG Photonics  vs.  BRP Inc

IPG Photonics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 1 (%) 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.

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with IPG Photonics and BRP

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

The idea behind IPG Photonics and BRP Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.