Correlation Between Lumentum Holdings and Digi International
Can any of the company-specific risk be diversified away by investing in both Lumentum Holdings and Digi International 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 Lumentum Holdings and Digi International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumentum Holdings and Digi International, you can compare the effects of market volatilities on Lumentum Holdings and Digi International 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 Lumentum Holdings with a short position of Digi International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumentum Holdings and Digi International.
Diversification Opportunities for Lumentum Holdings and Digi International
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lumentum and Digi is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Lumentum Holdings 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 Lumentum Holdings are associated (or correlated) with Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and Digi International go up and down completely randomly.
Pair Corralation between Lumentum Holdings and Digi International
Given the investment horizon of 90 days Lumentum Holdings is expected to generate 1.5 times more return on investment than Digi International. However, Lumentum Holdings is 1.5 times more volatile than Digi International. It trades about 0.36 of its potential returns per unit of risk. Digi International is currently generating about 0.18 per unit of risk. If you would invest 6,496 in Lumentum Holdings on August 27, 2024 and sell it today you would earn a total of 2,224 from holding Lumentum Holdings or generate 34.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lumentum Holdings vs. Digi International
Performance |
| Timeline |
| Lumentum Holdings |
| Digi International |
Lumentum Holdings and Digi International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumentum Holdings and Digi International
The main advantage of trading using opposite Lumentum Holdings and Digi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumentum Holdings position performs unexpectedly, Digi International 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 Digi International will offset losses from the drop in Digi International's long position.| Lumentum Holdings vs. Ichor Holdings | Lumentum Holdings vs. Fabrinet | Lumentum Holdings vs. Hello Group | Lumentum Holdings vs. Ultra Clean Holdings |
| Digi International vs. Ichor Holdings | Digi International vs. Fabrinet | Digi International vs. Hello Group | Digi International vs. Ultra Clean Holdings |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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