Correlation Between Lockheed Martin and Netflix

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

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

Diversification Opportunities for Lockheed Martin and Netflix

0.0

Correlation Coefficient

Lockheed Martin  Netflix

Pay attention - limited upside

The 3 months correlation between Lockheed and Netflix is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix 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 Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Netflix go up and down completely randomly.

Pair Corralation between Lockheed Martin and Netflix

Assuming the 90 days trading horizon Lockheed Martin is expected to generate 10.31 times less return on investment than Netflix. But when comparing it to its historical volatility, Lockheed Martin is 1.32 times less risky than Netflix. It trades about 0.03 of its potential returns per unit of risk. Netflix is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,352,600  in Netflix on August 30, 2024 and sell it today you would earn a total of  459,000  from holding Netflix or generate 33.93% return on investment over 90 days.

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

Lockheed Martin  vs.  Netflix

Lockheed Martin

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lockheed Martin are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Lockheed Martin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Netflix

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Netflix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lockheed Martin and Netflix

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

The idea behind Lockheed Martin and Netflix 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.