Correlation Between Lockheed Martin and BAE Systems

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

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

Diversification Opportunities for Lockheed Martin and BAE Systems

-0.21

Correlation Coefficient

Lockheed Martin  BAE Systems

Very good diversification

The 3 months correlation between Lockheed and BAE is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC 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 BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and BAE Systems go up and down completely randomly.

Pair Corralation between Lockheed Martin and BAE Systems

Considering the 90-day investment horizon Lockheed Martin is expected to under-perform the BAE Systems. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 1.75 times less risky than BAE Systems. The stock trades about -0.07 of its potential returns per unit of risk. The BAE Systems PLC is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,814  in BAE Systems PLC on December 27, 2024 and sell it today you would earn a total of  2,487  from holding BAE Systems PLC or generate 42.78% 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.  BAE Systems PLC

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.

BAE Systems PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BAE Systems PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, BAE Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lockheed Martin and BAE Systems

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

The idea behind Lockheed Martin and BAE Systems PLC 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.