Correlation Between IPG Photonics and Zapata Computing

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

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

Diversification Opportunities for IPG Photonics and Zapata Computing

0.03

Correlation Coefficient

IPG Photonics  Zapata Computing

Significant diversification

The 3 months correlation between IPG and Zapata is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Zapata Computing Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zapata Computing Holdings 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 Zapata Computing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zapata Computing Holdings has no effect on the direction of IPG Photonics i.e., IPG Photonics and Zapata Computing go up and down completely randomly.

Pair Corralation between IPG Photonics and Zapata Computing

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the Zapata Computing. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 17.97 times less risky than Zapata Computing. The stock trades about -0.03 of its potential returns per unit of risk. The Zapata Computing Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  43.00  in Zapata Computing Holdings on October 4, 2024 and sell it today you would lose (42.44) from holding Zapata Computing Holdings or give up 98.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.85%
Values	Daily Returns

IPG Photonics  vs.  Zapata Computing Holdings

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.

Zapata Computing Holdings

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Zapata Computing Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal basic indicators, Zapata Computing showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IPG Photonics and Zapata Computing

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

The idea behind IPG Photonics and Zapata Computing Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.