Correlation Between Seagate Technology and Lockheed Martin

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

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

Diversification Opportunities for Seagate Technology and Lockheed Martin

0.25

Correlation Coefficient

Seagate Technology  Lockheed Martin

Modest diversification

The 3 months correlation between Seagate and Lockheed is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Seagate Technology Holdings and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Seagate Technology 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 Seagate Technology Holdings 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 Seagate Technology i.e., Seagate Technology and Lockheed Martin go up and down completely randomly.

Pair Corralation between Seagate Technology and Lockheed Martin

Assuming the 90 days trading horizon Seagate Technology Holdings is expected to generate 1.49 times more return on investment than Lockheed Martin. However, Seagate Technology is 1.49 times more volatile than Lockheed Martin. It trades about -0.04 of its potential returns per unit of risk. Lockheed Martin is currently generating about -0.08 per unit of risk. If you would invest  63,795  in Seagate Technology Holdings on October 23, 2024 and sell it today you would lose (4,186) from holding Seagate Technology Holdings or give up 6.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Seagate Technology Holdings  vs.  Lockheed Martin

Seagate Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seagate Technology Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Seagate Technology 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. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Seagate Technology and Lockheed Martin

The main advantage of trading using opposite Seagate Technology and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seagate Technology 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 Seagate Technology Holdings 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.