Correlation Between Lockheed Martin and Raytheon Technologies

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

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

Diversification Opportunities for Lockheed Martin and Raytheon Technologies

0.15

Correlation Coefficient

Lockheed Martin  Raytheon Technologies

Average diversification

The 3 months correlation between Lockheed and Raytheon is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Raytheon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Lockheed Martin and Raytheon Technologies

Assuming the 90 days horizon Lockheed Martin is expected to generate 2.38 times less return on investment than Raytheon Technologies. But when comparing it to its historical volatility, Lockheed Martin is 1.16 times less risky than Raytheon Technologies. It trades about 0.02 of its potential returns per unit of risk. Raytheon Technologies Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,009  in Raytheon Technologies Corp on September 22, 2024 and sell it today you would earn a total of  2,027  from holding Raytheon Technologies Corp or generate 22.5% return on investment over 90 days.

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

Lockheed Martin  vs.  Raytheon Technologies Corp

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 fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Raytheon Technologies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Raytheon Technologies 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 Raytheon Technologies

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

The idea behind Lockheed Martin and Raytheon Technologies Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.