Correlation Between NETGEAR and Lumentum Holdings

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

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

Diversification Opportunities for NETGEAR and Lumentum Holdings

0.78

Correlation Coefficient

NETGEAR  Lumentum Holdings

Poor diversification

The 3 months correlation between NETGEAR and Lumentum is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Lumentum Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumentum Holdings and NETGEAR 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 NETGEAR 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 NETGEAR i.e., NETGEAR and Lumentum Holdings go up and down completely randomly.

Pair Corralation between NETGEAR and Lumentum Holdings

Given the investment horizon of 90 days NETGEAR is expected to generate 0.53 times more return on investment than Lumentum Holdings. However, NETGEAR is 1.87 times less risky than Lumentum Holdings. It trades about -0.06 of its potential returns per unit of risk. Lumentum Holdings is currently generating about -0.07 per unit of risk. If you would invest  2,769  in NETGEAR on December 30, 2024 and sell it today you would lose (297.00) from holding NETGEAR or give up 10.73% of portfolio value over 90 days.

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

NETGEAR  vs.  Lumentum Holdings

NETGEAR

Risk-Adjusted Performance

Very Weak

Over the last 90 days NETGEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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 NETGEAR and Lumentum Holdings

The main advantage of trading using opposite NETGEAR and Lumentum Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR 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 NETGEAR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.