Correlation Between Lockheed Martin and Transdigm Group

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

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

Diversification Opportunities for Lockheed Martin and Transdigm Group

0.71

Correlation Coefficient

Lockheed Martin  Transdigm Group

Poor diversification

The 3 months correlation between Lockheed and Transdigm is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Transdigm Group Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transdigm Group 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 Transdigm Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transdigm Group has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Transdigm Group go up and down completely randomly.

Pair Corralation between Lockheed Martin and Transdigm Group

Considering the 90-day investment horizon Lockheed Martin is expected to under-perform the Transdigm Group. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 1.68 times less risky than Transdigm Group. The stock trades about -0.13 of its potential returns per unit of risk. The Transdigm Group Incorporated is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  131,539  in Transdigm Group Incorporated on September 5, 2024 and sell it today you would lose (5,668) from holding Transdigm Group Incorporated or give up 4.31% of portfolio value over 90 days.

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

Lockheed Martin  vs.  Transdigm Group Incorporated

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 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.

Transdigm Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transdigm Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Transdigm Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lockheed Martin and Transdigm Group

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

The idea behind Lockheed Martin and Transdigm Group Incorporated 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 Global Correlations module to find global opportunities by holding instruments from different markets.