Correlation Between Lumentum Holdings and Ubiquiti Networks

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

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

Diversification Opportunities for Lumentum Holdings and Ubiquiti Networks

0.96

Correlation Coefficient

Lumentum Holdings  Ubiquiti Networks

Almost no diversification

The 3 months correlation between Lumentum and Ubiquiti is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Ubiquiti Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ubiquiti 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 Ubiquiti Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ubiquiti Networks has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Ubiquiti Networks go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Ubiquiti Networks

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 1.14 times less return on investment than Ubiquiti Networks. In addition to that, Lumentum Holdings is 1.05 times more volatile than Ubiquiti Networks. It trades about 0.25 of its total potential returns per unit of risk. Ubiquiti Networks is currently generating about 0.3 per unit of volatility. If you would invest  19,503  in Ubiquiti Networks on September 2, 2024 and sell it today you would earn a total of  15,146  from holding Ubiquiti Networks or generate 77.66% return on investment over 90 days.

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

Lumentum Holdings  vs.  Ubiquiti 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.

Ubiquiti Networks

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ubiquiti Networks are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Ubiquiti Networks demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumentum Holdings and Ubiquiti Networks

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

The idea behind Lumentum Holdings and Ubiquiti 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..