Correlation Between IPG Photonics and AXT

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

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

Diversification Opportunities for IPG Photonics and AXT

0.58

Correlation Coefficient

IPG Photonics  AXT

Very weak diversification

The 3 months correlation between IPG and AXT is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and AXT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXT Inc 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 AXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXT Inc has no effect on the direction of IPG Photonics i.e., IPG Photonics and AXT go up and down completely randomly.

Pair Corralation between IPG Photonics and AXT

Given the investment horizon of 90 days IPG Photonics is expected to generate 0.34 times more return on investment than AXT. However, IPG Photonics is 2.95 times less risky than AXT. It trades about -0.15 of its potential returns per unit of risk. AXT Inc is currently generating about -0.18 per unit of risk. If you would invest  8,837  in IPG Photonics on March 7, 2024 and sell it today you would lose (411.00) from holding IPG Photonics or give up 4.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

IPG Photonics  vs.  AXT Inc

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 relatively invariable technical and fundamental indicators, IPG Photonics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

AXT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AXT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with IPG Photonics and AXT

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

The idea behind IPG Photonics and AXT Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.