Correlation Between Lumentum Holdings and Red Cat

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

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

Diversification Opportunities for Lumentum Holdings and Red Cat

0.72

Correlation Coefficient

Lumentum Holdings  Red Cat

Poor diversification

The 3 months correlation between Lumentum and Red is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Red Cat Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Cat Holdings 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 Red Cat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Cat Holdings has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Red Cat go up and down completely randomly.

Pair Corralation between Lumentum Holdings and Red Cat

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 3.09 times less return on investment than Red Cat. But when comparing it to its historical volatility, Lumentum Holdings is 2.75 times less risky than Red Cat. It trades about 0.25 of its potential returns per unit of risk. Red Cat Holdings is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  295.00  in Red Cat Holdings on September 3, 2024 and sell it today you would earn a total of  882.00  from holding Red Cat Holdings or generate 298.98% return on investment over 90 days.

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

Lumentum Holdings  vs.  Red Cat Holdings

Lumentum Holdings

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Lumentum Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Red Cat Holdings

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Red Cat Holdings are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Red Cat unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumentum Holdings and Red Cat

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

The idea behind Lumentum Holdings and Red Cat Holdings 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.