Correlation Between IPG Photonics and Lululemon Athletica
Can any of the company-specific risk be diversified away by investing in both IPG Photonics and Lululemon Athletica 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 Lululemon Athletica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IPG Photonics and Lululemon Athletica, you can compare the effects of market volatilities on IPG Photonics and Lululemon Athletica 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 Lululemon Athletica. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPG Photonics and Lululemon Athletica.
Diversification Opportunities for IPG Photonics and Lululemon Athletica
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IPG and Lululemon is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Lululemon Athletica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lululemon Athletica 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 Lululemon Athletica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lululemon Athletica has no effect on the direction of IPG Photonics i.e., IPG Photonics and Lululemon Athletica go up and down completely randomly.
Pair Corralation between IPG Photonics and Lululemon Athletica
Given the investment horizon of 90 days IPG Photonics is expected to under-perform the Lululemon Athletica. But the stock apears to be less risky and, when comparing its historical volatility, IPG Photonics is 1.03 times less risky than Lululemon Athletica. The stock trades about -0.03 of its potential returns per unit of risk. The Lululemon Athletica is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 35,024 in Lululemon Athletica on September 3, 2024 and sell it today you would lose (2,958) from holding Lululemon Athletica or give up 8.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
IPG Photonics vs. Lululemon Athletica
Performance |
| Timeline |
| IPG Photonics |
| Lululemon Athletica |
IPG Photonics and Lululemon Athletica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IPG Photonics and Lululemon Athletica
The main advantage of trading using opposite IPG Photonics and Lululemon Athletica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPG Photonics position performs unexpectedly, Lululemon Athletica 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 Lululemon Athletica will offset losses from the drop in Lululemon Athletica's long position.| IPG Photonics vs. Teradyne | IPG Photonics vs. Ultra Clean Holdings | IPG Photonics vs. Onto Innovation | IPG Photonics vs. Cohu Inc |
| Lululemon Athletica vs. American Eagle Outfitters | Lululemon Athletica vs. Abercrombie Fitch | Lululemon Athletica vs. Urban Outfitters | Lululemon Athletica vs. Foot Locker |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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