Correlation Between IPG Photonics and STMicroelectronics

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

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

Diversification Opportunities for IPG Photonics and STMicroelectronics

-0.04

Correlation Coefficient

IPG Photonics  STMicroelectronics

Good diversification

The 3 months correlation between IPG and STMicroelectronics is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics NV ADR has no effect on the direction of IPG Photonics i.e., IPG Photonics and STMicroelectronics go up and down completely randomly.

Pair Corralation between IPG Photonics and STMicroelectronics

Given the investment horizon of 90 days IPG Photonics is expected to generate about the same return on investment as STMicroelectronics NV ADR. But, IPG Photonics is 1.31 times less risky than STMicroelectronics. It trades about -0.06 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.04 per unit of risk. If you would invest  2,488  in STMicroelectronics NV ADR on December 29, 2024 and sell it today you would lose (273.00) from holding STMicroelectronics NV ADR or give up 10.97% 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.  STMicroelectronics NV ADR

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.

STMicroelectronics NV ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with IPG Photonics and STMicroelectronics

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

The idea behind IPG Photonics and STMicroelectronics NV ADR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.