Correlation Between STMicroelectronics and IPG Photonics

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

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

Diversification Opportunities for STMicroelectronics and IPG Photonics

-0.04

Correlation Coefficient

STMicroelectronics  IPG Photonics

Good diversification

The 3 months correlation between STMicroelectronics and IPG is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and IPG Photonics go up and down completely randomly.

Pair Corralation between STMicroelectronics and IPG Photonics

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to generate about the same return on investment as IPG Photonics. However, STMicroelectronics is 1.31 times more volatile than IPG Photonics. It trades about -0.04 of its potential returns per unit of risk. IPG Photonics is currently producing about -0.06 per unit of risk. If you would invest  7,225  in IPG Photonics on December 30, 2024 and sell it today you would lose (712.00) from holding IPG Photonics or give up 9.85% of portfolio value over 90 days.

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

STMicroelectronics NV ADR  vs.  IPG Photonics

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.

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.

Pair Trading with STMicroelectronics and IPG Photonics

The main advantage of trading using opposite STMicroelectronics and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV ADR 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.