Correlation Between Lockheed Martin and Hexcel

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

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

Diversification Opportunities for Lockheed Martin and Hexcel

0.48

Correlation Coefficient

Lockheed Martin  Hexcel

Very weak diversification

The 3 months correlation between Lockheed and Hexcel is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Hexcel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexcel 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 Hexcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hexcel has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Hexcel go up and down completely randomly.

Pair Corralation between Lockheed Martin and Hexcel

Assuming the 90 days horizon Lockheed Martin is expected to under-perform the Hexcel. In addition to that, Lockheed Martin is 1.04 times more volatile than Hexcel. It trades about -0.1 of its total potential returns per unit of risk. Hexcel is currently generating about -0.09 per unit of volatility. If you would invest  5,984  in Hexcel on December 29, 2024 and sell it today you would lose (634.00) from holding Hexcel or give up 10.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Lockheed Martin  vs.  Hexcel

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 latest uncertain 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.

Hexcel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hexcel 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.

Pair Trading with Lockheed Martin and Hexcel

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

The idea behind Lockheed Martin and Hexcel 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.