Correlation Between Lumentum Holdings and Credo Technology

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

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

Diversification Opportunities for Lumentum Holdings and Credo Technology

0.94

Correlation Coefficient

Lumentum Holdings  Credo Technology

Almost no diversification

The 3 months correlation between Lumentum and Credo is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Credo Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credo Technology 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 Credo Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credo Technology has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Credo Technology go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Credo Technology

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 0.69 times more return on investment than Credo Technology. However, Lumentum Holdings is 1.45 times less risky than Credo Technology. It trades about -0.07 of its potential returns per unit of risk. Credo Technology Group is currently generating about -0.08 per unit of risk. If you would invest  8,384  in Lumentum Holdings on December 29, 2024 and sell it today you would lose (2,126) from holding Lumentum Holdings or give up 25.36% of portfolio value over 90 days.

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

Lumentum Holdings  vs.  Credo Technology Group

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Credo Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Credo Technology Group 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 fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Lumentum Holdings and Credo Technology

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

The idea behind Lumentum Holdings and Credo Technology Group 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.