Correlation Between GE Aerospace and Lockheed Martin

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

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

Diversification Opportunities for GE Aerospace and Lockheed Martin

0.87

Correlation Coefficient

GE Aerospace  Lockheed Martin

Very poor diversification

The 3 months correlation between GE Aerospace and Lockheed is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and GE Aerospace 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 GE Aerospace 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 GE Aerospace i.e., GE Aerospace and Lockheed Martin go up and down completely randomly.

Pair Corralation between GE Aerospace and Lockheed Martin

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.77 times more return on investment than Lockheed Martin. However, GE Aerospace is 1.77 times more volatile than Lockheed Martin. It trades about -0.16 of its potential returns per unit of risk. Lockheed Martin is currently generating about -0.4 per unit of risk. If you would invest  18,115  in GE Aerospace on September 23, 2024 and sell it today you would lose (1,278) from holding GE Aerospace or give up 7.05% of portfolio value over 90 days.

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

GE Aerospace  vs.  Lockheed Martin

GE Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GE Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Lockheed Martin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lockheed Martin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with GE Aerospace and Lockheed Martin

The main advantage of trading using opposite GE Aerospace and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace 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 GE Aerospace 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.