Correlation Between Aehr Test and IPG Photonics

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

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

Diversification Opportunities for Aehr Test and IPG Photonics

-0.12

Correlation Coefficient

Aehr Test  IPG Photonics

Good diversification

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

Pair Corralation between Aehr Test and IPG Photonics

Given the investment horizon of 90 days Aehr Test Systems is expected to generate 3.17 times more return on investment than IPG Photonics. However, Aehr Test is 3.17 times more volatile than IPG Photonics. It trades about 0.26 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.07 per unit of risk. If you would invest  1,212  in Aehr Test Systems on October 5, 2024 and sell it today you would earn a total of  451.00  from holding Aehr Test Systems or generate 37.21% return on investment over 90 days.

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

Aehr Test Systems  vs.  IPG Photonics

Aehr Test Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aehr Test Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Aehr Test reported solid returns over the last few months and may actually be approaching a breakup point.

IPG Photonics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IPG Photonics has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Aehr Test and IPG Photonics

The main advantage of trading using opposite Aehr Test and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aehr Test 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 Aehr Test Systems 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.