Correlation Between Lumentum Holdings and Belden

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

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

Diversification Opportunities for Lumentum Holdings and Belden

0.81

Correlation Coefficient

Lumentum Holdings  Belden

Very poor diversification

The 3 months correlation between Lumentum and Belden is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Belden Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Belden Inc 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 Belden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Belden Inc has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Belden go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Belden

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 1.59 times more return on investment than Belden. However, Lumentum Holdings is 1.59 times more volatile than Belden Inc. It trades about 0.24 of its potential returns per unit of risk. Belden Inc is currently generating about 0.15 per unit of risk. If you would invest  5,301  in Lumentum Holdings on August 31, 2024 and sell it today you would earn a total of  3,076  from holding Lumentum Holdings or generate 58.03% return on investment over 90 days.

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

Lumentum Holdings  vs.  Belden Inc

Lumentum Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 18 (%) 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.

Belden Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Belden Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Belden exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumentum Holdings and Belden

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

The idea behind Lumentum Holdings and Belden Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.