Correlation Between National Beverage and IPG Photonics

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

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

Diversification Opportunities for National Beverage and IPG Photonics

0.76

Correlation Coefficient

National Beverage  IPG Photonics

Poor diversification

The 3 months correlation between National and IPG is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and IPG Photonics go up and down completely randomly.

Pair Corralation between National Beverage and IPG Photonics

Given the investment horizon of 90 days National Beverage Corp is expected to under-perform the IPG Photonics. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.58 times less risky than IPG Photonics. The stock trades about -0.13 of its potential returns per unit of risk. The IPG Photonics is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  7,445  in IPG Photonics on December 19, 2024 and sell it today you would lose (835.00) from holding IPG Photonics or give up 11.22% of portfolio value over 90 days.

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

National Beverage Corp  vs.  IPG Photonics

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

IPG Photonics

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with National Beverage and IPG Photonics

The main advantage of trading using opposite National Beverage and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.