Correlation Between Valero Energy and Lockheed Martin

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

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

Diversification Opportunities for Valero Energy and Lockheed Martin

-0.38

Correlation Coefficient

Valero Energy  Lockheed Martin

Very good diversification

The 3 months correlation between Valero and Lockheed is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Valero Energy 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 Valero Energy 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 Valero Energy i.e., Valero Energy and Lockheed Martin go up and down completely randomly.

Pair Corralation between Valero Energy and Lockheed Martin

Assuming the 90 days trading horizon Valero Energy is expected to generate 1.04 times more return on investment than Lockheed Martin. However, Valero Energy is 1.04 times more volatile than Lockheed Martin. It trades about 0.06 of its potential returns per unit of risk. Lockheed Martin is currently generating about -0.1 per unit of risk. If you would invest  259,025  in Valero Energy on September 17, 2024 and sell it today you would earn a total of  14,644  from holding Valero Energy or generate 5.65% return on investment over 90 days.

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

Valero Energy  vs.  Lockheed Martin

Valero Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 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 Valero Energy and Lockheed Martin

The main advantage of trading using opposite Valero Energy and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valero Energy 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 Valero Energy 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.