Correlation Between Western Acquisition and IPG Photonics

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

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

Diversification Opportunities for Western Acquisition and IPG Photonics

0.29

Correlation Coefficient

Western Acquisition  IPG Photonics

Modest diversification

The 3 months correlation between Western and IPG is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Western Acquisition Ventures and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Western Acquisition 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 Western Acquisition Ventures 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 Western Acquisition i.e., Western Acquisition and IPG Photonics go up and down completely randomly.

Pair Corralation between Western Acquisition and IPG Photonics

Given the investment horizon of 90 days Western Acquisition Ventures is expected to under-perform the IPG Photonics. But the stock apears to be less risky and, when comparing its historical volatility, Western Acquisition Ventures is 1.69 times less risky than IPG Photonics. The stock trades about -0.16 of its potential returns per unit of risk. The IPG Photonics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,927  in IPG Photonics on September 27, 2024 and sell it today you would lose (294.00) from holding IPG Photonics or give up 3.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.67%
Values	Daily Returns

Western Acquisition Ventures  vs.  IPG Photonics

Western Acquisition

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Acquisition Ventures are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Western Acquisition and IPG Photonics

The main advantage of trading using opposite Western Acquisition and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Acquisition 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 Western Acquisition Ventures 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.