Correlation Between Lumentum Holdings and Technical Communications

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

By analyzing existing cross correlation between Lumentum Holdings and Technical Communications, you can compare the effects of market volatilities on Lumentum Holdings and Technical Communications 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 Technical Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumentum Holdings and Technical Communications.

Diversification Opportunities for Lumentum Holdings and Technical Communications

-0.38

Correlation Coefficient

Lumentum Holdings  Technical Communications

Very good diversification

The 3 months correlation between Lumentum and Technical is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Technical Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technical Communications 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 Technical Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technical Communications has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Technical Communications go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Technical Communications

If you would invest  5,508  in Lumentum Holdings on September 5, 2024 and sell it today you would earn a total of  3,362  from holding Lumentum Holdings or generate 61.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Lumentum Holdings  vs.  Technical Communications

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.

Technical Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Lumentum Holdings and Technical Communications

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

The idea behind Lumentum Holdings and Technical Communications 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.