Correlation Between United States and Lockheed Martin

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

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

Diversification Opportunities for United States and Lockheed Martin

0.54

Correlation Coefficient

United States  Lockheed Martin

Very weak diversification

The 3 months correlation between United and Lockheed is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and United States 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 United States Steel 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 United States i.e., United States and Lockheed Martin go up and down completely randomly.

Pair Corralation between United States and Lockheed Martin

Given the investment horizon of 90 days United States Steel is expected to under-perform the Lockheed Martin. In addition to that, United States is 2.57 times more volatile than Lockheed Martin. It trades about -0.19 of its total potential returns per unit of risk. Lockheed Martin is currently generating about -0.2 per unit of volatility. If you would invest  1,104,147  in Lockheed Martin on October 7, 2024 and sell it today you would lose (119,947) from holding Lockheed Martin or give up 10.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

United States Steel  vs.  Lockheed Martin

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, United States 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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with United States and Lockheed Martin

The main advantage of trading using opposite United States and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.