Correlation Between Micron Technology and IPG Photonics
Can any of the company-specific risk be diversified away by investing in both Micron Technology 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 Micron Technology and IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Micron Technology and IPG Photonics, you can compare the effects of market volatilities on Micron Technology 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 Micron Technology with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and IPG Photonics.
Diversification Opportunities for Micron Technology and IPG Photonics
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Micron and IPG is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Micron Technology 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 Micron Technology 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 Micron Technology i.e., Micron Technology and IPG Photonics go up and down completely randomly.
Pair Corralation between Micron Technology and IPG Photonics
Allowing for the 90-day total investment horizon Micron Technology is expected to generate 1.17 times more return on investment than IPG Photonics. However, Micron Technology is 1.17 times more volatile than IPG Photonics. It trades about 0.06 of its potential returns per unit of risk. IPG Photonics is currently generating about 0.0 per unit of risk. If you would invest 5,303 in Micron Technology on August 27, 2024 and sell it today you would earn a total of 4,961 from holding Micron Technology or generate 93.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Micron Technology vs. IPG Photonics
Performance |
| Timeline |
| Micron Technology |
| IPG Photonics |
Micron Technology and IPG Photonics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micron Technology and IPG Photonics
The main advantage of trading using opposite Micron Technology and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology 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 Micron Technology 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.| IPG Photonics vs. Teradyne | IPG Photonics vs. Ultra Clean Holdings | IPG Photonics vs. Onto Innovation | IPG Photonics vs. Cohu Inc |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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