Correlation Between Sonos and IPG Photonics

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

By analyzing existing cross correlation between Sonos Inc and IPG Photonics, you can compare the effects of market volatilities on Sonos and IPG Photonics 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 Sonos with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sonos and IPG Photonics.

Diversification Opportunities for Sonos and IPG Photonics

0.34

Correlation Coefficient

Sonos  IPG Photonics

Weak diversification

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

Pair Corralation between Sonos and IPG Photonics

Given the investment horizon of 90 days Sonos Inc is expected to generate 1.27 times more return on investment than IPG Photonics. However, Sonos is 1.27 times more volatile than IPG Photonics. It trades about 0.11 of its potential returns per unit of risk. IPG Photonics is currently generating about 0.08 per unit of risk. If you would invest  1,375  in Sonos Inc on September 15, 2024 and sell it today you would earn a total of  82.00  from holding Sonos Inc or generate 5.96% return on investment over 90 days.

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

Sonos Inc  vs.  IPG Photonics

Sonos Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

IPG Photonics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 7 (%) 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.

Pair Trading with Sonos and IPG Photonics

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

The idea behind Sonos Inc and IPG Photonics 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.