Correlation Between Lumentum Holdings and Electronic Systems

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

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

Diversification Opportunities for Lumentum Holdings and Electronic Systems

0.3

Correlation Coefficient

Lumentum Holdings  Electronic Systems

Weak diversification

The 3 months correlation between Lumentum and Electronic is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Electronic Systems Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Systems 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 Electronic Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Systems has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Electronic Systems go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Electronic Systems

Given the investment horizon of 90 days Lumentum Holdings is expected to under-perform the Electronic Systems. But the stock apears to be less risky and, when comparing its historical volatility, Lumentum Holdings is 1.56 times less risky than Electronic Systems. The stock trades about -0.07 of its potential returns per unit of risk. The Electronic Systems Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Electronic Systems Technology on December 30, 2024 and sell it today you would lose (1.00) from holding Electronic Systems Technology or give up 10.0% of portfolio value over 90 days.

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

Lumentum Holdings  vs.  Electronic Systems Technology

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.

Electronic Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Systems Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Electronic Systems may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Lumentum Holdings and Electronic Systems

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

The idea behind Lumentum Holdings and Electronic Systems Technology 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.