Correlation Between Applied Materials and IPG Photonics
Can any of the company-specific risk be diversified away by investing in both Applied Materials 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 Applied Materials and IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Materials and IPG Photonics, you can compare the effects of market volatilities on Applied Materials 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 Applied Materials with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and IPG Photonics.
Diversification Opportunities for Applied Materials and IPG Photonics
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Applied and IPG is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and IPG Photonics go up and down completely randomly.
Pair Corralation between Applied Materials and IPG Photonics
Given the investment horizon of 90 days Applied Materials is expected to generate 0.9 times more return on investment than IPG Photonics. However, Applied Materials is 1.11 times less risky than IPG Photonics. It trades about 0.1 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.04 per unit of risk. If you would invest 12,128 in Applied Materials on January 26, 2024 and sell it today you would earn a total of 7,478 from holding Applied Materials or generate 61.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Materials vs. IPG Photonics
Performance |
| Timeline |
| Applied Materials |
| IPG Photonics |
Applied Materials and IPG Photonics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Materials and IPG Photonics
The main advantage of trading using opposite Applied Materials and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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.| Applied Materials vs. KLA Tencor | Applied Materials vs. ASML Holding NV | Applied Materials vs. Axcelis Technologies | Applied Materials vs. Teradyne |
| IPG Photonics vs. KLA Tencor | IPG Photonics vs. ASML Holding NV | IPG Photonics vs. Axcelis Technologies | IPG Photonics vs. Teradyne |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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