Correlation Between IPG Photonics and NetEase

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

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

Diversification Opportunities for IPG Photonics and NetEase

-0.28

Correlation Coefficient

IPG Photonics  NetEase

Very good diversification

The 3 months correlation between IPG and NetEase is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of IPG Photonics i.e., IPG Photonics and NetEase go up and down completely randomly.

Pair Corralation between IPG Photonics and NetEase

Given the investment horizon of 90 days IPG Photonics is expected to generate 1.67 times less return on investment than NetEase. But when comparing it to its historical volatility, IPG Photonics is 1.29 times less risky than NetEase. It trades about 0.04 of its potential returns per unit of risk. NetEase is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,654  in NetEase on September 24, 2024 and sell it today you would earn a total of  555.00  from holding NetEase or generate 6.41% return on investment over 90 days.

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

IPG Photonics  vs.  NetEase

IPG Photonics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 2 (%) 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.

NetEase

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IPG Photonics and NetEase

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

The idea behind IPG Photonics and NetEase 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.