Correlation Between Hexcel and Lockheed Martin

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

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

Diversification Opportunities for Hexcel and Lockheed Martin

0.15

Correlation Coefficient

Hexcel  Lockheed Martin

Average diversification

The 3 months correlation between Hexcel and Lockheed is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Hexcel 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 Hexcel 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 Hexcel i.e., Hexcel and Lockheed Martin go up and down completely randomly.

Pair Corralation between Hexcel and Lockheed Martin

Considering the 90-day investment horizon Hexcel is expected to under-perform the Lockheed Martin. But the stock apears to be less risky and, when comparing its historical volatility, Hexcel is 1.04 times less risky than Lockheed Martin. The stock trades about -0.08 of its potential returns per unit of risk. The Lockheed Martin is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  47,983  in Lockheed Martin on December 28, 2024 and sell it today you would lose (3,834) from holding Lockheed Martin or give up 7.99% of portfolio value over 90 days.

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

Hexcel  vs.  Lockheed Martin

Hexcel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hexcel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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. In spite of latest unsteady performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Hexcel and Lockheed Martin

The main advantage of trading using opposite Hexcel and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hexcel 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 Hexcel 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.