Correlation Between Home Depot and Lockheed Martin

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

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

Diversification Opportunities for Home Depot and Lockheed Martin

-0.46

Correlation Coefficient

Home Depot  Lockheed Martin

Very good diversification

The 3 months correlation between Home and Lockheed is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding The Home Depot and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Home Depot 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 The Home Depot 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 Home Depot i.e., Home Depot and Lockheed Martin go up and down completely randomly.

Pair Corralation between Home Depot and Lockheed Martin

Assuming the 90 days trading horizon The Home Depot is expected to under-perform the Lockheed Martin. In addition to that, Home Depot is 1.46 times more volatile than Lockheed Martin. It trades about -0.35 of its total potential returns per unit of risk. Lockheed Martin is currently generating about -0.46 per unit of volatility. If you would invest  312,211  in Lockheed Martin on October 10, 2024 and sell it today you would lose (29,576) from holding Lockheed Martin or give up 9.47% of portfolio value over 90 days.

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

The Home Depot  vs.  Lockheed Martin

Home Depot

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Home Depot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Home Depot and Lockheed Martin

The main advantage of trading using opposite Home Depot and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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 The Home Depot 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.