Correlation Between Lumentum Holdings and Motorola Solutions

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

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

Diversification Opportunities for Lumentum Holdings and Motorola Solutions

0.94

Correlation Coefficient

Lumentum Holdings  Motorola Solutions

Almost no diversification

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

Pair Corralation between Lumentum Holdings and Motorola Solutions

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 2.56 times more return on investment than Motorola Solutions. However, Lumentum Holdings is 2.56 times more volatile than Motorola Solutions. It trades about 0.24 of its potential returns per unit of risk. Motorola Solutions is currently generating about 0.17 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Lumentum Holdings  vs.  Motorola Solutions

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.

Motorola Solutions

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Motorola Solutions are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Motorola Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumentum Holdings and Motorola Solutions

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

The idea behind Lumentum Holdings and Motorola Solutions 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 Transaction History module to view history of all your transactions and understand their impact on performance.