Correlation Between Lockheed Martin and GE Aerospace

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

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

Diversification Opportunities for Lockheed Martin and GE Aerospace

0.88

Correlation Coefficient

Lockheed Martin  GE Aerospace

Very poor diversification

The 3 months correlation between Lockheed and GE Aerospace is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and GE Aerospace go up and down completely randomly.

Pair Corralation between Lockheed Martin and GE Aerospace

Considering the 90-day investment horizon Lockheed Martin is expected to generate 0.44 times more return on investment than GE Aerospace. However, Lockheed Martin is 2.25 times less risky than GE Aerospace. It trades about -0.31 of its potential returns per unit of risk. GE Aerospace is currently generating about -0.16 per unit of risk. If you would invest  51,820  in Lockheed Martin on September 27, 2024 and sell it today you would lose (3,007) from holding Lockheed Martin or give up 5.8% of portfolio value over 90 days.

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

Lockheed Martin  vs.  GE Aerospace

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 unsteady performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

GE Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GE Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Lockheed Martin and GE Aerospace

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

The idea behind Lockheed Martin and GE Aerospace 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.