Correlation Between Lockheed Martin and China Metal
Can any of the company-specific risk be diversified away by investing in both Lockheed Martin and China Metal 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 China Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lockheed Martin and China Metal Products, you can compare the effects of market volatilities on Lockheed Martin and China Metal 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 China Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lockheed Martin and China Metal.
Diversification Opportunities for Lockheed Martin and China Metal
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Lockheed and China is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and China Metal Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Metal Products 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 China Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Metal Products has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and China Metal go up and down completely randomly.
Pair Corralation between Lockheed Martin and China Metal
Considering the 90-day investment horizon Lockheed Martin is expected to generate 0.71 times more return on investment than China Metal. However, Lockheed Martin is 1.42 times less risky than China Metal. It trades about -0.2 of its potential returns per unit of risk. China Metal Products is currently generating about -0.18 per unit of risk. If you would invest 55,517 in Lockheed Martin on August 28, 2024 and sell it today you would lose (3,328) from holding Lockheed Martin or give up 5.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lockheed Martin vs. China Metal Products
Performance |
| Timeline |
| Lockheed Martin |
| China Metal Products |
Lockheed Martin and China Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lockheed Martin and China Metal
The main advantage of trading using opposite Lockheed Martin and China Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lockheed Martin position performs unexpectedly, China Metal 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 China Metal will offset losses from the drop in China Metal's long position.| Lockheed Martin vs. Northrop Grumman | Lockheed Martin vs. General Dynamics | Lockheed Martin vs. L3Harris Technologies | Lockheed Martin vs. The Boeing |
| China Metal vs. Basso Industry Corp | China Metal vs. Chung Hsin Electric Machinery | China Metal vs. TYC Brother Industrial | China Metal vs. TECO Electric Machinery |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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