Correlation Between Lockheed Martin and Valero Energy

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

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

Diversification Opportunities for Lockheed Martin and Valero Energy

-0.38

Correlation Coefficient

Lockheed Martin  Valero Energy

Very good diversification

The 3 months correlation between Lockheed and Valero is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy 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 Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Valero Energy go up and down completely randomly.

Pair Corralation between Lockheed Martin and Valero Energy

Assuming the 90 days trading horizon Lockheed Martin is expected to under-perform the Valero Energy. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 1.77 times less risky than Valero Energy. The stock trades about -0.46 of its potential returns per unit of risk. The Valero Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  277,834  in Valero Energy on September 17, 2024 and sell it today you would lose (4,165) from holding Valero Energy or give up 1.5% of portfolio value over 90 days.

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

Lockheed Martin  vs.  Valero Energy

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.

Valero Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lockheed Martin and Valero Energy

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

The idea behind Lockheed Martin and Valero Energy 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.