Correlation Between ASML Holding and IPG Photonics

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

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

Diversification Opportunities for ASML Holding and IPG Photonics

-0.59

Correlation Coefficient

ASML Holding  IPG Photonics

Excellent diversification

The 3 months correlation between ASML and IPG is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding ASML Holding NV and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and ASML Holding 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 ASML Holding NV 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 ASML Holding i.e., ASML Holding and IPG Photonics go up and down completely randomly.

Pair Corralation between ASML Holding and IPG Photonics

Given the investment horizon of 90 days ASML Holding NV is expected to under-perform the IPG Photonics. In addition to that, ASML Holding is 1.24 times more volatile than IPG Photonics. It trades about -0.16 of its total potential returns per unit of risk. IPG Photonics is currently generating about -0.12 per unit of volatility. If you would invest  8,915  in IPG Photonics on January 20, 2024 and sell it today you would lose (456.00) from holding IPG Photonics or give up 5.11% of portfolio value over 90 days.

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

ASML Holding NV  vs.  IPG Photonics

ASML Holding NV

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain primary indicators, ASML Holding disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with ASML Holding and IPG Photonics

The main advantage of trading using opposite ASML Holding and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASML Holding 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 ASML Holding NV 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.