Correlation Between Lockheed Martin and Rheinmetall

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

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

Diversification Opportunities for Lockheed Martin and Rheinmetall

-0.31

Correlation Coefficient

Lockheed Martin  Rheinmetall

Very good diversification

The 3 months correlation between Lockheed and Rheinmetall is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Rheinmetall go up and down completely randomly.

Pair Corralation between Lockheed Martin and Rheinmetall

Considering the 90-day investment horizon Lockheed Martin is expected to under-perform the Rheinmetall. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 2.22 times less risky than Rheinmetall. The stock trades about -0.06 of its potential returns per unit of risk. The Rheinmetall AG is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  64,500  in Rheinmetall AG on December 30, 2024 and sell it today you would earn a total of  77,780  from holding Rheinmetall AG or generate 120.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Lockheed Martin  vs.  Rheinmetall AG

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.

Rheinmetall AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental drivers, Rheinmetall reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lockheed Martin and Rheinmetall

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

The idea behind Lockheed Martin and Rheinmetall AG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.