Correlation Between WT Offshore and IPG Photonics

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

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

Diversification Opportunities for WT Offshore and IPG Photonics

0.16

Correlation Coefficient

WT Offshore  IPG Photonics

Average diversification

The 3 months correlation between WTI and IPG is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding WT Offshore and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics and WT Offshore 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 WT Offshore 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 WT Offshore i.e., WT Offshore and IPG Photonics go up and down completely randomly.

Pair Corralation between WT Offshore and IPG Photonics

Considering the 90-day investment horizon WT Offshore is expected to under-perform the IPG Photonics. In addition to that, WT Offshore is 1.42 times more volatile than IPG Photonics. It trades about -0.03 of its total potential returns per unit of risk. IPG Photonics is currently generating about -0.03 per unit of volatility. If you would invest  7,476  in IPG Photonics on August 20, 2024 and sell it today you would lose (177.00) from holding IPG Photonics or give up 2.37% of portfolio value over 90 days.

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

WT Offshore  vs.  IPG Photonics

WT Offshore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WT Offshore has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

IPG Photonics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, IPG Photonics is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WT Offshore and IPG Photonics

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

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.