Correlation Between Hewlett Packard and Lumentum Holdings
Can any of the company-specific risk be diversified away by investing in both Hewlett Packard 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 Hewlett Packard and Lumentum Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hewlett Packard Enterprise and Lumentum Holdings, you can compare the effects of market volatilities on Hewlett Packard 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 Hewlett Packard with a short position of Lumentum Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hewlett Packard and Lumentum Holdings.
Diversification Opportunities for Hewlett Packard and Lumentum Holdings
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hewlett and Lumentum is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hewlett Packard Enterprise and Lumentum Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumentum Holdings and Hewlett Packard 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 Hewlett Packard Enterprise 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 Hewlett Packard i.e., Hewlett Packard and Lumentum Holdings go up and down completely randomly.
Pair Corralation between Hewlett Packard and Lumentum Holdings
Considering the 90-day investment horizon Hewlett Packard is expected to generate 1.74 times less return on investment than Lumentum Holdings. But when comparing it to its historical volatility, Hewlett Packard Enterprise is 1.56 times less risky than Lumentum Holdings. It trades about 0.07 of its potential returns per unit of risk. Lumentum Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,265 in Lumentum Holdings on November 9, 2024 and sell it today you would earn a total of 4,002 from holding Lumentum Holdings or generate 76.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hewlett Packard Enterprise vs. Lumentum Holdings
Performance |
| Timeline |
| Hewlett Packard Ente |
| Lumentum Holdings |
Hewlett Packard and Lumentum Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hewlett Packard and Lumentum Holdings
The main advantage of trading using opposite Hewlett Packard and Lumentum Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hewlett Packard 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.| Hewlett Packard vs. Nokia Corp ADR | Hewlett Packard vs. Juniper Networks | Hewlett Packard vs. Ciena Corp | Hewlett Packard vs. Motorola Solutions |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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