Correlation Between 126307BB2 and IPG Photonics

Can any of the company-specific risk be diversified away by investing in both 126307BB2 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 126307BB2 and IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CSC Holdings 4125 and IPG Photonics, you can compare the effects of market volatilities on 126307BB2 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 126307BB2 with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of 126307BB2 and IPG Photonics.

Diversification Opportunities for 126307BB2 and IPG Photonics

0.77

Correlation Coefficient

126307BB2  IPG Photonics

Poor diversification

The 3 months correlation between 126307BB2 and IPG is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding CSC Holdings 4125 and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and 126307BB2 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 CSC Holdings 4125 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 126307BB2 i.e., 126307BB2 and IPG Photonics go up and down completely randomly.

Pair Corralation between 126307BB2 and IPG Photonics

Assuming the 90 days trading horizon 126307BB2 is expected to generate 4.83 times less return on investment than IPG Photonics. But when comparing it to its historical volatility, CSC Holdings 4125 is 1.17 times less risky than IPG Photonics. It trades about 0.03 of its potential returns per unit of risk. IPG Photonics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,554  in IPG Photonics on September 5, 2024 and sell it today you would earn a total of  1,227  from holding IPG Photonics or generate 18.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	75.0%
Values	Daily Returns

CSC Holdings 4125  vs.  IPG Photonics

CSC Holdings 4125

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CSC Holdings 4125 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 126307BB2 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 126307BB2 and IPG Photonics

The main advantage of trading using opposite 126307BB2 and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 126307BB2 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 CSC Holdings 4125 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.