Correlation Between Telecom and IPG Photonics

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

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

Diversification Opportunities for Telecom and IPG Photonics

-0.12

Correlation Coefficient

Telecom  IPG Photonics

Good diversification

The 3 months correlation between Telecom and IPG is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Italia Capital and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Telecom 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 Telecom Italia Capital 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 Telecom i.e., Telecom and IPG Photonics go up and down completely randomly.

Pair Corralation between Telecom and IPG Photonics

Assuming the 90 days trading horizon Telecom Italia Capital is expected to under-perform the IPG Photonics. But the bond apears to be less risky and, when comparing its historical volatility, Telecom Italia Capital is 1.38 times less risky than IPG Photonics. The bond trades about -0.15 of its potential returns per unit of risk. The IPG Photonics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,114  in IPG Photonics on September 24, 2024 and sell it today you would earn a total of  325.00  from holding IPG Photonics or generate 4.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

Telecom Italia Capital  vs.  IPG Photonics

Telecom Italia Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecom Italia Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for Telecom Italia Capital investors.

IPG Photonics

Risk-Adjusted Performance

3 of 100

Weak

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 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.

Pair Trading with Telecom and IPG Photonics

The main advantage of trading using opposite Telecom and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecom 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 Telecom Italia Capital 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.