Correlation Between IPG Photonics and Nova

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

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

Diversification Opportunities for IPG Photonics and Nova

-0.12

Correlation Coefficient

IPG Photonics  Nova

Good diversification

The 3 months correlation between IPG and Nova is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova 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 Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of IPG Photonics i.e., IPG Photonics and Nova go up and down completely randomly.

Pair Corralation between IPG Photonics and Nova

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the Nova. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 1.15 times less risky than Nova. The stock trades about -0.01 of its potential returns per unit of risk. The Nova is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,292  in Nova on September 21, 2024 and sell it today you would earn a total of  11,196  from holding Nova or generate 135.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

IPG Photonics  vs.  Nova

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.

Nova

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Nova 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 Nova

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

The idea behind IPG Photonics and Nova 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 CEOs Directory module to screen CEOs from public companies around the world.