Correlation Between MKS Instruments and Lumentum Holdings

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

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

Diversification Opportunities for MKS Instruments and Lumentum Holdings

0.94

Correlation Coefficient

MKS Instruments  Lumentum Holdings

Almost no diversification

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

Pair Corralation between MKS Instruments and Lumentum Holdings

Given the investment horizon of 90 days MKS Instruments is expected to generate 0.61 times more return on investment than Lumentum Holdings. However, MKS Instruments is 1.65 times less risky than Lumentum Holdings. It trades about -0.11 of its potential returns per unit of risk. Lumentum Holdings is currently generating about -0.07 per unit of risk. If you would invest  10,385  in MKS Instruments on December 28, 2024 and sell it today you would lose (2,226) from holding MKS Instruments or give up 21.43% of portfolio value over 90 days.

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

MKS Instruments  vs.  Lumentum Holdings

MKS Instruments

Risk-Adjusted Performance

Very Weak

Over the last 90 days MKS Instruments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with MKS Instruments and Lumentum Holdings

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

The idea behind MKS Instruments and Lumentum 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.