Correlation Between IPG Photonics and KLA Tencor

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

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

Diversification Opportunities for IPG Photonics and KLA Tencor

-0.73

Correlation Coefficient

IPG Photonics  KLA Tencor

Pay attention - limited upside

The 3 months correlation between IPG and KLA is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor and IPG Photonics 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 IPG Photonics are associated (or correlated) with KLA Tencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Tencor has no effect on the direction of IPG Photonics i.e., IPG Photonics and KLA Tencor go up and down completely randomly.

Pair Corralation between IPG Photonics and KLA Tencor

Given the investment horizon of 90 days IPG Photonics is expected to generate 0.89 times more return on investment than KLA Tencor. However, IPG Photonics is 1.12 times less risky than KLA Tencor. It trades about -0.13 of its potential returns per unit of risk. KLA Tencor is currently generating about -0.22 per unit of risk. If you would invest  8,915  in IPG Photonics on January 20, 2024 and sell it today you would lose (488.00) from holding IPG Photonics or give up 5.47% of portfolio value over 90 days.

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

IPG Photonics  vs.  KLA Tencor

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.

KLA Tencor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KLA Tencor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, KLA Tencor is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IPG Photonics and KLA Tencor

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

The idea behind IPG Photonics and KLA Tencor 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.