Correlation Between Stepan and IPG Photonics
Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and IPG Photonics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and IPG Photonics, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and IPG Photonics.
Diversification Opportunities for Stepan and IPG Photonics
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Stepan and IPG is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and IPG Photonics go up and down completely randomly.
Pair Corralation between Stepan and IPG Photonics
Considering the 90-day investment horizon Stepan Company is expected to generate 1.05 times more return on investment than IPG Photonics. However, Stepan is 1.05 times more volatile than IPG Photonics. It trades about 0.14 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.07 per unit of risk. If you would invest 7,197 in Stepan Company on September 1, 2024 and sell it today you would earn a total of 493.00 from holding Stepan Company or generate 6.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. IPG Photonics
Performance |
| Timeline |
| Stepan Company |
| IPG Photonics |
Stepan and IPG Photonics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and IPG Photonics
The main advantage of trading using opposite Stepan and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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