Correlation Between IPG Photonics and Microsoft

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

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

Diversification Opportunities for IPG Photonics and Microsoft

-0.13

Correlation Coefficient

IPG Photonics  Microsoft

Good diversification

The 3 months correlation between IPG and Microsoft is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of IPG Photonics i.e., IPG Photonics and Microsoft go up and down completely randomly.

Pair Corralation between IPG Photonics and Microsoft

Given the investment horizon of 90 days IPG Photonics is expected to generate 1.59 times more return on investment than Microsoft. However, IPG Photonics is 1.59 times more volatile than Microsoft. It trades about -0.04 of its potential returns per unit of risk. Microsoft is currently generating about -0.16 per unit of risk. If you would invest  9,016  in IPG Photonics on January 30, 2024 and sell it today you would lose (176.00) from holding IPG Photonics or give up 1.95% of portfolio value over 90 days.

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

IPG Photonics  vs.  Microsoft

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 latest inconsistent 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.

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IPG Photonics and Microsoft

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

The idea behind IPG Photonics and Microsoft 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.