Correlation Between Lockheed Martin and Microchip Technology

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

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

Diversification Opportunities for Lockheed Martin and Microchip Technology

0.71

Correlation Coefficient

Lockheed Martin  Microchip Technology

Poor diversification

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

Pair Corralation between Lockheed Martin and Microchip Technology

Assuming the 90 days trading horizon Lockheed Martin is expected to under-perform the Microchip Technology. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 1.2 times less risky than Microchip Technology. The stock trades about -0.13 of its potential returns per unit of risk. The Microchip Technology Incorporated is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  17,990  in Microchip Technology Incorporated on December 27, 2024 and sell it today you would lose (2,575) from holding Microchip Technology Incorporated or give up 14.31% 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.  Microchip Technology Incorpora

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Microchip Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microchip Technology Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lockheed Martin and Microchip Technology

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

The idea behind Lockheed Martin and Microchip Technology 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.