Correlation Between IPG Photonics and MKS Instruments

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

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

Diversification Opportunities for IPG Photonics and MKS Instruments

0.78

Correlation Coefficient

IPG Photonics  MKS Instruments

Poor diversification

The 3 months correlation between IPG and MKS is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and MKS Instruments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MKS Instruments 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 MKS Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MKS Instruments has no effect on the direction of IPG Photonics i.e., IPG Photonics and MKS Instruments go up and down completely randomly.

Pair Corralation between IPG Photonics and MKS Instruments

Given the investment horizon of 90 days IPG Photonics is expected to generate 0.81 times more return on investment than MKS Instruments. However, IPG Photonics is 1.23 times less risky than MKS Instruments. It trades about -0.08 of its potential returns per unit of risk. MKS Instruments is currently generating about -0.09 per unit of risk. If you would invest  7,641  in IPG Photonics on December 26, 2024 and sell it today you would lose (980.00) from holding IPG Photonics or give up 12.83% of portfolio value over 90 days.

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

IPG Photonics  vs.  MKS Instruments

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.

MKS Instruments

Risk-Adjusted Performance

Very Weak

Over the last 90 days MKS Instruments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with IPG Photonics and MKS Instruments

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

The idea behind IPG Photonics and MKS Instruments 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.