Correlation Between Lumen Technologies and Applied Digital

Can any of the company-specific risk be diversified away by investing in both Lumen Technologies and Applied Digital 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 Lumen Technologies and Applied Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lumen Technologies and Applied Digital, you can compare the effects of market volatilities on Lumen Technologies and Applied Digital 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 Lumen Technologies with a short position of Applied Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumen Technologies and Applied Digital.

Diversification Opportunities for Lumen Technologies and Applied Digital

0.37

Correlation Coefficient

Lumen Technologies  Applied Digital

Weak diversification

The 3 months correlation between Lumen and Applied is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Lumen Technologies and Applied Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Digital and Lumen Technologies 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 Lumen Technologies are associated (or correlated) with Applied Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Digital has no effect on the direction of Lumen Technologies i.e., Lumen Technologies and Applied Digital go up and down completely randomly.

Pair Corralation between Lumen Technologies and Applied Digital

Given the investment horizon of 90 days Lumen Technologies is expected to under-perform the Applied Digital. But the stock apears to be less risky and, when comparing its historical volatility, Lumen Technologies is 1.93 times less risky than Applied Digital. The stock trades about -0.09 of its potential returns per unit of risk. The Applied Digital is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  797.00  in Applied Digital on December 29, 2024 and sell it today you would lose (225.00) from holding Applied Digital or give up 28.23% of portfolio value over 90 days.

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

Lumen Technologies  vs.  Applied Digital

Lumen Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lumen Technologies 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 primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Applied Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's essential 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.

Pair Trading with Lumen Technologies and Applied Digital

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

The idea behind Lumen Technologies and Applied Digital 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.