Correlation Between Lockheed Martin and Rolls Royce

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

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

Diversification Opportunities for Lockheed Martin and Rolls Royce

-0.57

Correlation Coefficient

Lockheed Martin  Rolls Royce

Excellent diversification

The 3 months correlation between Lockheed and Rolls is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Rolls Royce go up and down completely randomly.

Pair Corralation between Lockheed Martin and Rolls Royce

Assuming the 90 days horizon Lockheed Martin is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 1.65 times less risky than Rolls Royce. The stock trades about -0.09 of its potential returns per unit of risk. The Rolls Royce Holdings plc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  689.00  in Rolls Royce Holdings plc on December 28, 2024 and sell it today you would earn a total of  272.00  from holding Rolls Royce Holdings plc or generate 39.48% return on investment over 90 days.

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

Lockheed Martin  vs.  Rolls Royce Holdings plc

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.

Rolls Royce Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lockheed Martin and Rolls Royce

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

The idea behind Lockheed Martin and Rolls Royce Holdings plc 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .