Correlation Between IPG Photonics and VARNO

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

By analyzing existing cross correlation between IPG Photonics and VARNO 75 15 JAN 28, you can compare the effects of market volatilities on IPG Photonics and VARNO 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 VARNO. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPG Photonics and VARNO.

Diversification Opportunities for IPG Photonics and VARNO

-0.34

Correlation Coefficient

IPG Photonics  VARNO

Very good diversification

The 3 months correlation between IPG and VARNO is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and VARNO 75 15 JAN 28 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VARNO 75 15 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 VARNO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VARNO 75 15 has no effect on the direction of IPG Photonics i.e., IPG Photonics and VARNO go up and down completely randomly.

Pair Corralation between IPG Photonics and VARNO

Given the investment horizon of 90 days IPG Photonics is expected to generate 9.3 times more return on investment than VARNO. However, IPG Photonics is 9.3 times more volatile than VARNO 75 15 JAN 28. It trades about 0.09 of its potential returns per unit of risk. VARNO 75 15 JAN 28 is currently generating about -0.08 per unit of risk. If you would invest  6,779  in IPG Photonics on September 5, 2024 and sell it today you would earn a total of  1,002  from holding IPG Photonics or generate 14.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.59%
Values	Daily Returns

IPG Photonics  vs.  VARNO 75 15 JAN 28

IPG Photonics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, IPG Photonics reported solid returns over the last few months and may actually be approaching a breakup point.

VARNO 75 15

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VARNO 75 15 JAN 28 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, VARNO is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IPG Photonics and VARNO

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

The idea behind IPG Photonics and VARNO 75 15 JAN 28 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.