Correlation Between IPG Photonics and AXT

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

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

Diversification Opportunities for IPG Photonics and AXT

0.09

Correlation Coefficient

IPG Photonics  AXT

Significant diversification

The 3 months correlation between IPG and AXT is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and AXT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXT Inc 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 AXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXT Inc has no effect on the direction of IPG Photonics i.e., IPG Photonics and AXT go up and down completely randomly.

Pair Corralation between IPG Photonics and AXT

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the AXT. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 2.51 times less risky than AXT. The stock trades about -0.01 of its potential returns per unit of risk. The AXT Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  437.00  in AXT Inc on September 21, 2024 and sell it today you would lose (217.50) from holding AXT Inc or give up 49.77% of portfolio value over 90 days.

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

IPG Photonics  vs.  AXT Inc

IPG Photonics

Risk-Adjusted Performance

3 of 100

Insignificant

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 weak technical and fundamental indicators, IPG Photonics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AXT Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AXT Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, AXT demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IPG Photonics and AXT

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

The idea behind IPG Photonics and AXT Inc 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.