Correlation Between Lam Research and IPG Photonics

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

Diversification Opportunities for Lam Research and IPG Photonics

-0.8
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Lam and IPG is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research Corp and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Lam Research 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 Lam Research Corp 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 Lam Research i.e., Lam Research and IPG Photonics go up and down completely randomly.

Pair Corralation between Lam Research and IPG Photonics

Given the investment horizon of 90 days Lam Research Corp is expected to generate 1.12 times more return on investment than IPG Photonics. However, Lam Research is 1.12 times more volatile than IPG Photonics. It trades about 0.07 of its potential returns per unit of risk. IPG Photonics is currently generating about 0.0 per unit of risk. If you would invest  46,391  in Lam Research Corp on December 30, 2023 and sell it today you would earn a total of  50,766  from holding Lam Research Corp or generate 109.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Lam Research Corp  vs.  IPG Photonics

 Performance 
       Timeline  
Lam Research Corp 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Lam Research showed solid returns over the last few months and may actually be approaching a breakup point.
IPG Photonics 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 April 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Lam Research and IPG Photonics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lam Research and IPG Photonics

The main advantage of trading using opposite Lam Research and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lam Research 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 Lam Research Corp 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.
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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