Correlation Between ARAMARK and IPG Photonics

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

By analyzing existing cross correlation between ARAMARK SVCS INC and IPG Photonics, you can compare the effects of market volatilities on ARAMARK 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 ARAMARK with a short position of IPG Photonics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARAMARK and IPG Photonics.

Diversification Opportunities for ARAMARK and IPG Photonics

0.2

Correlation Coefficient

ARAMARK  IPG Photonics

Modest diversification

The 3 months correlation between ARAMARK and IPG is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ARAMARK SVCS INC and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and ARAMARK 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 ARAMARK SVCS INC 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 ARAMARK i.e., ARAMARK and IPG Photonics go up and down completely randomly.

Pair Corralation between ARAMARK and IPG Photonics

Assuming the 90 days trading horizon ARAMARK SVCS INC is expected to under-perform the IPG Photonics. But the bond apears to be less risky and, when comparing its historical volatility, ARAMARK SVCS INC is 5.29 times less risky than IPG Photonics. The bond trades about -0.17 of its potential returns per unit of risk. The IPG Photonics is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,577  in IPG Photonics on September 4, 2024 and sell it today you would earn a total of  1,394  from holding IPG Photonics or generate 21.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	48.44%
Values	Daily Returns

ARAMARK SVCS INC  vs.  IPG Photonics

ARAMARK SVCS INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARAMARK SVCS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ARAMARK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

IPG Photonics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, IPG Photonics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARAMARK and IPG Photonics

The main advantage of trading using opposite ARAMARK and IPG Photonics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARAMARK 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 ARAMARK SVCS INC 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..