Correlation Between Lumentum Holdings and Gilat Satellite

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

By analyzing existing cross correlation between Lumentum Holdings and Gilat Satellite Networks, you can compare the effects of market volatilities on Lumentum Holdings and Gilat Satellite 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 Lumentum Holdings with a short position of Gilat Satellite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumentum Holdings and Gilat Satellite.

Diversification Opportunities for Lumentum Holdings and Gilat Satellite

0.79

Correlation Coefficient

Lumentum Holdings  Gilat Satellite

Poor diversification

The 3 months correlation between Lumentum and Gilat is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Gilat Satellite Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilat Satellite Networks and Lumentum Holdings 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 Lumentum Holdings are associated (or correlated) with Gilat Satellite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilat Satellite Networks has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Gilat Satellite go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Gilat Satellite

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 1.16 times more return on investment than Gilat Satellite. However, Lumentum Holdings is 1.16 times more volatile than Gilat Satellite Networks. It trades about 0.25 of its potential returns per unit of risk. Gilat Satellite Networks is currently generating about 0.13 per unit of risk. If you would invest  5,301  in Lumentum Holdings on September 2, 2024 and sell it today you would earn a total of  3,396  from holding Lumentum Holdings or generate 64.06% return on investment over 90 days.

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

Lumentum Holdings  vs.  Gilat Satellite Networks

Lumentum Holdings

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lumentum Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gilat Satellite Networks

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gilat Satellite Networks are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, Gilat Satellite unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumentum Holdings and Gilat Satellite

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

The idea behind Lumentum Holdings and Gilat Satellite Networks 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.