Correlation Between Luna Innovations and Coherent

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

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

Diversification Opportunities for Luna Innovations and Coherent

-0.34

Correlation Coefficient

Luna Innovations  Coherent

Very good diversification

The 3 months correlation between Luna and Coherent is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Luna Innovations Incorporated and Coherent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coherent and Luna Innovations 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 Luna Innovations Incorporated are associated (or correlated) with Coherent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coherent has no effect on the direction of Luna Innovations i.e., Luna Innovations and Coherent go up and down completely randomly.

Pair Corralation between Luna Innovations and Coherent

Given the investment horizon of 90 days Luna Innovations Incorporated is expected to generate 1.99 times more return on investment than Coherent. However, Luna Innovations is 1.99 times more volatile than Coherent. It trades about 0.04 of its potential returns per unit of risk. Coherent is currently generating about 0.06 per unit of risk. If you would invest  213.00  in Luna Innovations Incorporated on October 1, 2024 and sell it today you would earn a total of  4.00  from holding Luna Innovations Incorporated or generate 1.88% return on investment over 90 days.

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

Luna Innovations Incorporated  vs.  Coherent

Luna Innovations

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luna Innovations Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Luna Innovations sustained solid returns over the last few months and may actually be approaching a breakup point.

Coherent

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coherent are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Coherent may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Luna Innovations and Coherent

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

The idea behind Luna Innovations Incorporated and Coherent 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.