Correlation Between IPG Photonics and Rackspace Technology

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

Diversification Opportunities for IPG Photonics and Rackspace Technology

0.4

Correlation Coefficient

IPG Photonics  Rackspace Technology

Very weak diversification

The 3 months correlation between IPG and Rackspace is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Rackspace Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rackspace 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 Rackspace Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rackspace Technology has no effect on the direction of IPG Photonics i.e., IPG Photonics and Rackspace Technology go up and down completely randomly.

Pair Corralation between IPG Photonics and Rackspace Technology

Given the investment horizon of 90 days IPG Photonics is expected to generate 0.85 times more return on investment than Rackspace Technology. However, IPG Photonics is 1.17 times less risky than Rackspace Technology. It trades about -0.07 of its potential returns per unit of risk. Rackspace Technology is currently generating about -0.32 per unit of risk. If you would invest  7,536  in IPG Photonics on October 5, 2024 and sell it today you would lose (264.00) from holding IPG Photonics or give up 3.5% of portfolio value over 90 days.

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

IPG Photonics  vs.  Rackspace 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.

Rackspace Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rackspace Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with IPG Photonics and Rackspace Technology

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

The idea behind IPG Photonics and Rackspace 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.