Correlation Between Hon Hai and Lumentum Holdings
Can any of the company-specific risk be diversified away by investing in both Hon Hai 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 Hon Hai and Lumentum Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hon Hai Precision and Lumentum Holdings, you can compare the effects of market volatilities on Hon Hai 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 Hon Hai with a short position of Lumentum Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Lumentum Holdings.
Diversification Opportunities for Hon Hai and Lumentum Holdings
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hon and Lumentum is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Lumentum Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumentum Holdings and Hon Hai 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 Hon Hai Precision 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 Hon Hai i.e., Hon Hai and Lumentum Holdings go up and down completely randomly.
Pair Corralation between Hon Hai and Lumentum Holdings
Assuming the 90 days horizon Hon Hai Precision is expected to under-perform the Lumentum Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 2.4 times less risky than Lumentum Holdings. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Lumentum Holdings is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 6,566 in Lumentum Holdings on August 24, 2024 and sell it today you would earn a total of 1,995 from holding Lumentum Holdings or generate 30.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Lumentum Holdings
Performance |
| Timeline |
| Hon Hai Precision |
| Lumentum Holdings |
Hon Hai and Lumentum Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Lumentum Holdings
The main advantage of trading using opposite Hon Hai and Lumentum Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai 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.| Hon Hai vs. AT S Austria | Hon Hai vs. alpha En | Hon Hai vs. Alps Electric Co | Hon Hai vs. Bitmine Immersion Technologies |
| Lumentum Holdings vs. Hewlett Packard Enterprise | Lumentum Holdings vs. Juniper Networks | Lumentum Holdings vs. Cisco Systems | Lumentum Holdings vs. Viavi Solutions |
Check out your portfolio center.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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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