Correlation Between Lockheed Martin and Avis Budget

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

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

Diversification Opportunities for Lockheed Martin and Avis Budget

-0.15

Correlation Coefficient

Lockheed Martin  Avis Budget

Good diversification

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

Pair Corralation between Lockheed Martin and Avis Budget

Assuming the 90 days trading horizon Lockheed Martin is expected to under-perform the Avis Budget. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 2.68 times less risky than Avis Budget. The stock trades about -0.1 of its potential returns per unit of risk. The Avis Budget Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  205,200  in Avis Budget Group on September 17, 2024 and sell it today you would earn a total of  14,300  from holding Avis Budget Group or generate 6.97% return on investment over 90 days.

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

Lockheed Martin  vs.  Avis Budget Group

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Avis Budget Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Avis Budget may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lockheed Martin and Avis Budget

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

The idea behind Lockheed Martin and Avis Budget Group 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.