Correlation Between General Dynamics and Lockheed Martin

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

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

Diversification Opportunities for General Dynamics and Lockheed Martin

0.65

Correlation Coefficient

General Dynamics  Lockheed Martin

Poor diversification

The 3 months correlation between General and Lockheed is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and General Dynamics 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 General Dynamics 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 General Dynamics i.e., General Dynamics and Lockheed Martin go up and down completely randomly.

Pair Corralation between General Dynamics and Lockheed Martin

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 1.13 times less return on investment than Lockheed Martin. In addition to that, General Dynamics is 1.21 times more volatile than Lockheed Martin. It trades about 0.12 of its total potential returns per unit of risk. Lockheed Martin is currently generating about 0.16 per unit of volatility. If you would invest  42,678  in Lockheed Martin on January 26, 2024 and sell it today you would earn a total of  3,236  from holding Lockheed Martin or generate 7.58% return on investment over 90 days.

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

General Dynamics  vs.  Lockheed Martin

General Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Lockheed Martin

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lockheed Martin are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady primary indicators, Lockheed Martin may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with General Dynamics and Lockheed Martin

The main advantage of trading using opposite General Dynamics and Lockheed Martin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics 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 General Dynamics 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.