Correlation Between Wendys and IPG Photonics

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Can any of the company-specific risk be diversified away by investing in both Wendys 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 Wendys and IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and IPG Photonics, you can compare the effects of market volatilities on Wendys 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 Wendys with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and IPG Photonics.

Diversification Opportunities for Wendys and IPG Photonics

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wendys and IPG is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and IPG Photonics go up and down completely randomly.

Pair Corralation between Wendys and IPG Photonics

Considering the 90-day investment horizon Wendys is expected to generate 8.12 times less return on investment than IPG Photonics. But when comparing it to its historical volatility, The Wendys Co is 1.27 times less risky than IPG Photonics. It trades about 0.02 of its potential returns per unit of risk. IPG Photonics is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,767  in IPG Photonics on September 13, 2024 and sell it today you would earn a total of  1,006  from holding IPG Photonics or generate 14.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

The Wendys Co  vs.  IPG Photonics

 Performance 
       Timeline  
The Wendys 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in The Wendys Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Wendys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
IPG Photonics 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 8 (%) 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.

Wendys and IPG Photonics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wendys and IPG Photonics

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

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