Correlation Between Lockheed Martin and General Dynamics

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

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

Diversification Opportunities for Lockheed Martin and General Dynamics

0.55

Correlation Coefficient

Lockheed Martin  General Dynamics

Very weak diversification

The 3 months correlation between Lockheed and General is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Lockheed Martin 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 Lockheed Martin are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and General Dynamics go up and down completely randomly.

Pair Corralation between Lockheed Martin and General Dynamics

Considering the 90-day investment horizon Lockheed Martin is expected to generate 1.58 times less return on investment than General Dynamics. But when comparing it to its historical volatility, Lockheed Martin is 1.09 times less risky than General Dynamics. It trades about 0.17 of its potential returns per unit of risk. General Dynamics is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  27,761  in General Dynamics on January 24, 2024 and sell it today you would earn a total of  1,370  from holding General Dynamics or generate 4.93% return on investment over 90 days.

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

Lockheed Martin  vs.  General Dynamics

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 weak primary indicators, Lockheed Martin may actually be approaching a critical reversion point that can send shares even higher in May 2024.

General Dynamics

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Lockheed Martin and General Dynamics

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

The idea behind Lockheed Martin and General Dynamics 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.