Correlation Between Discover Financial and Lockheed Martin

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

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

Diversification Opportunities for Discover Financial and Lockheed Martin

-0.15

Correlation Coefficient

Discover Financial  Lockheed Martin

Good diversification

The 3 months correlation between Discover and Lockheed is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Discover Financial 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 Discover Financial Services are associated (or correlated) with Lockheed Martin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lockheed Martin has no effect on the direction of Discover Financial i.e., Discover Financial and Lockheed Martin go up and down completely randomly.

Pair Corralation between Discover Financial and Lockheed Martin

Assuming the 90 days horizon Discover Financial Services is expected to under-perform the Lockheed Martin. In addition to that, Discover Financial is 1.49 times more volatile than Lockheed Martin. It trades about -0.08 of its total potential returns per unit of risk. Lockheed Martin is currently generating about -0.05 per unit of volatility. If you would invest  46,228  in Lockheed Martin on December 22, 2024 and sell it today you would lose (3,038) from holding Lockheed Martin or give up 6.57% of portfolio value over 90 days.

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

Discover Financial Services  vs.  Lockheed Martin

Discover Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Lockheed Martin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lockheed Martin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lockheed Martin is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Discover Financial and Lockheed Martin

The main advantage of trading using opposite Discover Financial and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Lockheed Martin 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 Lockheed Martin will offset losses from the drop in Lockheed Martin's long position.

The idea behind Discover Financial Services and Lockheed Martin 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.