Correlation Between IPG Photonics and BJs Restaurants

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

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

Diversification Opportunities for IPG Photonics and BJs Restaurants

0.36

Correlation Coefficient

IPG Photonics  BJs Restaurants

Weak diversification

The 3 months correlation between IPG and BJs is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of IPG Photonics i.e., IPG Photonics and BJs Restaurants go up and down completely randomly.

Pair Corralation between IPG Photonics and BJs Restaurants

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the BJs Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 1.03 times less risky than BJs Restaurants. The stock trades about -0.04 of its potential returns per unit of risk. The BJs Restaurants is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,730  in BJs Restaurants on October 26, 2024 and sell it today you would lose (182.00) from holding BJs Restaurants or give up 4.88% of portfolio value over 90 days.

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

IPG Photonics  vs.  BJs Restaurants

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.

BJs Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IPG Photonics and BJs Restaurants

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

The idea behind IPG Photonics and BJs Restaurants 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.