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
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between General and Lockheed is 0.87. 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
Assuming the 90 days horizon General Dynamics is expected to generate 0.28 times more return on investment than Lockheed Martin. However, General Dynamics is 3.63 times less risky than Lockheed Martin. It trades about 0.22 of its potential returns per unit of risk. Lockheed Martin is currently generating about 0.01 per unit of risk. If you would invest 530,462 in General Dynamics on October 20, 2024 and sell it today you would earn a total of 11,296 from holding General Dynamics or generate 2.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
General Dynamics vs. Lockheed Martin
Performance |
| Timeline |
| General Dynamics |
| Lockheed Martin |
General Dynamics and Lockheed Martin Volatility Contrast
Predicted Return Density |
| Returns |
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.| General Dynamics vs. The Boeing | General Dynamics vs. Lockheed Martin | General Dynamics vs. Textron | General Dynamics vs. Amazon Inc |
| Lockheed Martin vs. McEwen Mining | Lockheed Martin vs. Grupo Sports World | Lockheed Martin vs. Applied Materials | Lockheed Martin vs. UnitedHealth Group Incorporated |
Check out your portfolio center.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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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