Correlation Between Lockheed Martin and Air Products
Can any of the company-specific risk be diversified away by investing in both Lockheed Martin and Air Products 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 Air Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lockheed Martin and Air Products and, you can compare the effects of market volatilities on Lockheed Martin and Air Products 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 Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lockheed Martin and Air Products.
Diversification Opportunities for Lockheed Martin and Air Products
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Lockheed and Air is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Air Products go up and down completely randomly.
Pair Corralation between Lockheed Martin and Air Products
Considering the 90-day investment horizon Lockheed Martin is expected to generate 0.65 times more return on investment than Air Products. However, Lockheed Martin is 1.53 times less risky than Air Products. It trades about 0.03 of its potential returns per unit of risk. Air Products and is currently generating about 0.02 per unit of risk. If you would invest 46,208 in Lockheed Martin on August 27, 2024 and sell it today you would earn a total of 8,014 from holding Lockheed Martin or generate 17.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lockheed Martin vs. Air Products and
Performance |
| Timeline |
| Lockheed Martin |
| Air Products |
Lockheed Martin and Air Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lockheed Martin and Air Products
The main advantage of trading using opposite Lockheed Martin and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lockheed Martin position performs unexpectedly, Air Products 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 Air Products will offset losses from the drop in Air Products' long position.| Lockheed Martin vs. Northrop Grumman | Lockheed Martin vs. General Dynamics | Lockheed Martin vs. L3Harris Technologies | Lockheed Martin vs. The Boeing |
| Air Products vs. PPG Industries | Air Products vs. Ecolab Inc | Air Products vs. Sherwin Williams Co | Air Products vs. LyondellBasell Industries NV |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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