Correlation Between Lockheed Martin and STMicroelectronics

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

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

Diversification Opportunities for Lockheed Martin and STMicroelectronics

0.08

Correlation Coefficient

Lockheed Martin  STMicroelectronics

Significant diversification

The 3 months correlation between Lockheed and STMicroelectronics is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and STMicroelectronics go up and down completely randomly.

Pair Corralation between Lockheed Martin and STMicroelectronics

Assuming the 90 days trading horizon Lockheed Martin is expected to generate 0.65 times more return on investment than STMicroelectronics. However, Lockheed Martin is 1.55 times less risky than STMicroelectronics. It trades about 0.1 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.08 per unit of risk. If you would invest  217,333  in Lockheed Martin on October 3, 2024 and sell it today you would earn a total of  81,425  from holding Lockheed Martin or generate 37.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.98%
Values	Daily Returns

Lockheed Martin  vs.  STMicroelectronics NV

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. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lockheed Martin and STMicroelectronics

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

The idea behind Lockheed Martin and STMicroelectronics NV 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.