Correlation Between Lockheed Martin and AeroVironment

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

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

Diversification Opportunities for Lockheed Martin and AeroVironment

0.5

Correlation Coefficient

Lockheed Martin  AeroVironment

Very weak diversification

The 3 months correlation between Lockheed and AeroVironment is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and AeroVironment go up and down completely randomly.

Pair Corralation between Lockheed Martin and AeroVironment

Assuming the 90 days horizon Lockheed Martin is expected to generate 0.38 times more return on investment than AeroVironment. However, Lockheed Martin is 2.6 times less risky than AeroVironment. It trades about -0.16 of its potential returns per unit of risk. AeroVironment is currently generating about -0.08 per unit of risk. If you would invest  54,965  in Lockheed Martin on October 6, 2024 and sell it today you would lose (8,010) from holding Lockheed Martin or give up 14.57% of portfolio value over 90 days.

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

Lockheed Martin  vs.  AeroVironment

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

AeroVironment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lockheed Martin and AeroVironment

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

The idea behind Lockheed Martin and AeroVironment 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..