Correlation Between IPG Photonics and MACOM Technology

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

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

Diversification Opportunities for IPG Photonics and MACOM Technology

0.62

Correlation Coefficient

IPG Photonics  MACOM Technology

Poor diversification

The 3 months correlation between IPG and MACOM is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and MACOM Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACOM Technology Sol 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 MACOM Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACOM Technology Sol has no effect on the direction of IPG Photonics i.e., IPG Photonics and MACOM Technology go up and down completely randomly.

Pair Corralation between IPG Photonics and MACOM Technology

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the MACOM Technology. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 1.71 times less risky than MACOM Technology. The stock trades about -0.4 of its potential returns per unit of risk. The MACOM Technology Solutions is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  14,878  in MACOM Technology Solutions on November 19, 2024 and sell it today you would lose (2,566) from holding MACOM Technology Solutions or give up 17.25% 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.  MACOM Technology Solutions

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.

MACOM Technology Sol

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IPG Photonics and MACOM Technology

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

The idea behind IPG Photonics and MACOM Technology Solutions 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 Commodity Directory module to find actively traded commodities issued by global exchanges.