Correlation Between IPG Photonics and RLX Technology

Can any of the company-specific risk be diversified away by investing in both IPG Photonics and RLX 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 RLX 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 RLX Technology, you can compare the effects of market volatilities on IPG Photonics and RLX 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 RLX Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPG Photonics and RLX Technology.

Diversification Opportunities for IPG Photonics and RLX Technology

-0.36

Correlation Coefficient

IPG Photonics  RLX Technology

Very good diversification

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

Pair Corralation between IPG Photonics and RLX Technology

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the RLX Technology. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 1.42 times less risky than RLX Technology. The stock trades about -0.03 of its potential returns per unit of risk. The RLX Technology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  260.00  in RLX Technology on October 5, 2024 and sell it today you would lose (43.00) from holding RLX Technology or give up 16.54% 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.  RLX Technology

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.

RLX Technology

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLX Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent essential indicators, RLX Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IPG Photonics and RLX Technology

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

The idea behind IPG Photonics and RLX Technology 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.