Correlation Between IPG Photonics and Lam Research

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

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

Diversification Opportunities for IPG Photonics and Lam Research

-0.13

Correlation Coefficient

IPG Photonics  Lam Research

Good diversification

The 3 months correlation between IPG and Lam is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Lam Research Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research Corp 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research Corp has no effect on the direction of IPG Photonics i.e., IPG Photonics and Lam Research go up and down completely randomly.

Pair Corralation between IPG Photonics and Lam Research

Given the investment horizon of 90 days IPG Photonics is expected to generate 0.84 times more return on investment than Lam Research. However, IPG Photonics is 1.18 times less risky than Lam Research. It trades about -0.01 of its potential returns per unit of risk. Lam Research Corp is currently generating about -0.03 per unit of risk. If you would invest  7,481  in IPG Photonics on September 22, 2024 and sell it today you would lose (97.00) from holding IPG Photonics or give up 1.3% of portfolio value over 90 days.

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

IPG Photonics  vs.  Lam Research Corp

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.

Lam Research Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IPG Photonics and Lam Research

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

The idea behind IPG Photonics and Lam Research Corp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.