Correlation Between IPG Photonics and Addus HomeCare

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

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

Diversification Opportunities for IPG Photonics and Addus HomeCare

-0.26

Correlation Coefficient

IPG Photonics  Addus HomeCare

Very good diversification

The 3 months correlation between IPG and Addus is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare and IPG Photonics 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 IPG Photonics are associated (or correlated) with Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of IPG Photonics i.e., IPG Photonics and Addus HomeCare go up and down completely randomly.

Pair Corralation between IPG Photonics and Addus HomeCare

Given the investment horizon of 90 days IPG Photonics is expected to generate 2.06 times less return on investment than Addus HomeCare. In addition to that, IPG Photonics is 1.36 times more volatile than Addus HomeCare. It trades about 0.1 of its total potential returns per unit of risk. Addus HomeCare is currently generating about 0.29 per unit of volatility. If you would invest  11,827  in Addus HomeCare on September 18, 2024 and sell it today you would earn a total of  1,246  from holding Addus HomeCare or generate 10.54% return on investment over 90 days.

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

IPG Photonics  vs.  Addus HomeCare

IPG Photonics

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, IPG Photonics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IPG Photonics and Addus HomeCare

The main advantage of trading using opposite IPG Photonics and Addus HomeCare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPG Photonics position performs unexpectedly, Addus HomeCare 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 Addus HomeCare will offset losses from the drop in Addus HomeCare's long position.

The idea behind IPG Photonics and Addus HomeCare 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..