Correlation Between IPG Photonics and Transphorm Technology

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

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

Diversification Opportunities for IPG Photonics and Transphorm Technology

0.22

Correlation Coefficient

IPG Photonics  Transphorm Technology

Modest diversification

The 3 months correlation between IPG and Transphorm is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Transphorm Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transphorm Technology 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 Transphorm Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transphorm Technology has no effect on the direction of IPG Photonics i.e., IPG Photonics and Transphorm Technology go up and down completely randomly.

Pair Corralation between IPG Photonics and Transphorm Technology

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the Transphorm Technology. In addition to that, IPG Photonics is 4.97 times more volatile than Transphorm Technology. It trades about -0.02 of its total potential returns per unit of risk. Transphorm Technology is currently generating about -0.08 per unit of volatility. If you would invest  490.00  in Transphorm Technology on February 3, 2024 and sell it today you would lose (4.00) from holding Transphorm Technology or give up 0.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

IPG Photonics  vs.  Transphorm Technology

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 weak 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.

Transphorm Technology

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Transphorm Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Transphorm Technology is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IPG Photonics and Transphorm Technology

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

The idea behind IPG Photonics and Transphorm Technology 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.