Correlation Between Lumentum Holdings and Applied Opt

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

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

Diversification Opportunities for Lumentum Holdings and Applied Opt

0.52

Correlation Coefficient

Lumentum Holdings  Applied Opt

Very weak diversification

The 3 months correlation between Lumentum and Applied is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Applied Opt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Opt 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 Applied Opt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Opt has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Applied Opt go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Applied Opt

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 0.58 times more return on investment than Applied Opt. However, Lumentum Holdings is 1.73 times less risky than Applied Opt. It trades about -0.06 of its potential returns per unit of risk. Applied Opt is currently generating about -0.08 per unit of risk. If you would invest  8,697  in Lumentum Holdings on November 29, 2024 and sell it today you would lose (1,735) from holding Lumentum Holdings or give up 19.95% of portfolio value over 90 days.

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

Lumentum Holdings  vs.  Applied Opt

Lumentum Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lumentum Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Applied Opt

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Opt has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Lumentum Holdings and Applied Opt

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

The idea behind Lumentum Holdings and Applied Opt 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.