Correlation Between Lasertec and IPG Photonics

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

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

Diversification Opportunities for Lasertec and IPG Photonics

-0.56

Correlation Coefficient

Lasertec  IPG Photonics

Excellent diversification

The 3 months correlation between Lasertec and IPG is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Lasertec and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Lasertec 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 Lasertec 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 Lasertec i.e., Lasertec and IPG Photonics go up and down completely randomly.

Pair Corralation between Lasertec and IPG Photonics

Assuming the 90 days horizon Lasertec is expected to under-perform the IPG Photonics. In addition to that, Lasertec is 1.22 times more volatile than IPG Photonics. It trades about -0.26 of its total potential returns per unit of risk. IPG Photonics is currently generating about 0.13 per unit of volatility. If you would invest  6,543  in IPG Photonics on September 3, 2024 and sell it today you would earn a total of  1,261  from holding IPG Photonics or generate 19.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Lasertec  vs.  IPG Photonics

Lasertec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lasertec has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

IPG Photonics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, IPG Photonics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lasertec and IPG Photonics

The main advantage of trading using opposite Lasertec and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lasertec 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 Lasertec 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.