Correlation Between Lumentum Holdings and Frequency Electronics

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

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

Diversification Opportunities for Lumentum Holdings and Frequency Electronics

0.52

Correlation Coefficient

Lumentum Holdings  Frequency Electronics

Very weak diversification

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

Pair Corralation between Lumentum Holdings and Frequency Electronics

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 1.92 times less return on investment than Frequency Electronics. In addition to that, Lumentum Holdings is 1.0 times more volatile than Frequency Electronics. It trades about 0.04 of its total potential returns per unit of risk. Frequency Electronics is currently generating about 0.09 per unit of volatility. If you would invest  554.00  in Frequency Electronics on October 22, 2024 and sell it today you would earn a total of  1,145  from holding Frequency Electronics or generate 206.68% return on investment over 90 days.

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

Lumentum Holdings  vs.  Frequency Electronics

Lumentum Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 14 (%) 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.

Frequency Electronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Frequency Electronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumentum Holdings and Frequency Electronics

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

The idea behind Lumentum Holdings and Frequency Electronics 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.