Correlation Between Lumentum Holdings and KVH Industries

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

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

Diversification Opportunities for Lumentum Holdings and KVH Industries

0.02

Correlation Coefficient

Lumentum Holdings  KVH Industries

Significant diversification

The 3 months correlation between Lumentum and KVH is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and KVH Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KVH Industries 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 KVH Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KVH Industries has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and KVH Industries go up and down completely randomly.

Pair Corralation between Lumentum Holdings and KVH Industries

Given the investment horizon of 90 days Lumentum Holdings is expected to under-perform the KVH Industries. In addition to that, Lumentum Holdings is 2.35 times more volatile than KVH Industries. It trades about -0.06 of its total potential returns per unit of risk. KVH Industries is currently generating about 0.06 per unit of volatility. If you would invest  551.00  in KVH Industries on November 29, 2024 and sell it today you would earn a total of  34.00  from holding KVH Industries or generate 6.17% return on investment over 90 days.

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

Lumentum Holdings  vs.  KVH Industries

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.

KVH Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KVH Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical indicators, KVH Industries may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Lumentum Holdings and KVH Industries

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

The idea behind Lumentum Holdings and KVH Industries 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.