Correlation Between Masco and Lockheed Martin

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

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

Diversification Opportunities for Masco and Lockheed Martin

-0.52

Correlation Coefficient

Masco  Lockheed Martin

Excellent diversification

The 3 months correlation between Masco and Lockheed is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Masco 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 Masco are associated (or correlated) with Lockheed Martin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lockheed Martin has no effect on the direction of Masco i.e., Masco and Lockheed Martin go up and down completely randomly.

Pair Corralation between Masco and Lockheed Martin

Assuming the 90 days trading horizon Masco is expected to generate 3.0 times less return on investment than Lockheed Martin. But when comparing it to its historical volatility, Masco is 2.6 times less risky than Lockheed Martin. It trades about 0.07 of its potential returns per unit of risk. Lockheed Martin is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  769,433  in Lockheed Martin on October 26, 2024 and sell it today you would earn a total of  273,467  from holding Lockheed Martin or generate 35.54% return on investment over 90 days.

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

Masco  vs.  Lockheed Martin

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. In spite of fairly strong basic indicators, Lockheed Martin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Masco and Lockheed Martin

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

The idea behind Masco and Lockheed Martin 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.