Correlation Between Lumentum Holdings and TESSCO Technologies
Can any of the company-specific risk be diversified away by investing in both Lumentum Holdings and TESSCO Technologies 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 TESSCO Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumentum Holdings and TESSCO Technologies Incorporated, you can compare the effects of market volatilities on Lumentum Holdings and TESSCO Technologies 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 TESSCO Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumentum Holdings and TESSCO Technologies.
Diversification Opportunities for Lumentum Holdings and TESSCO Technologies
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lumentum and TESSCO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and TESSCO Technologies Incorporat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TESSCO Technologies 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 TESSCO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TESSCO Technologies has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and TESSCO Technologies go up and down completely randomly.
Pair Corralation between Lumentum Holdings and TESSCO Technologies
Given the investment horizon of 90 days Lumentum Holdings is expected to generate 27.23 times more return on investment than TESSCO Technologies. However, Lumentum Holdings is 27.23 times more volatile than TESSCO Technologies Incorporated. It trades about 0.06 of its potential returns per unit of risk. TESSCO Technologies Incorporated is currently generating about 0.25 per unit of risk. If you would invest 5,106 in Lumentum Holdings on September 1, 2024 and sell it today you would earn a total of 3,591 from holding Lumentum Holdings or generate 70.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 6.99% |
| Values | Daily Returns |
Lumentum Holdings vs. TESSCO Technologies Incorporat
Performance |
| Timeline |
| Lumentum Holdings |
| TESSCO Technologies |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Lumentum Holdings and TESSCO Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumentum Holdings and TESSCO Technologies
The main advantage of trading using opposite Lumentum Holdings and TESSCO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumentum Holdings position performs unexpectedly, TESSCO Technologies 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 TESSCO Technologies will offset losses from the drop in TESSCO Technologies' long position.| Lumentum Holdings vs. NETGEAR | Lumentum Holdings vs. KVH Industries | Lumentum Holdings vs. Telesat Corp | Lumentum Holdings vs. Juniper Networks |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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