Correlation Between Lockheed Martin and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Lockheed Martin and BAE Systems 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 BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lockheed Martin and BAE Systems PLC, you can compare the effects of market volatilities on Lockheed Martin and BAE Systems 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 BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lockheed Martin and BAE Systems.
Diversification Opportunities for Lockheed Martin and BAE Systems
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Lockheed and BAE is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC 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 BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and BAE Systems go up and down completely randomly.
Pair Corralation between Lockheed Martin and BAE Systems
Considering the 90-day investment horizon Lockheed Martin is expected to generate 3.49 times less return on investment than BAE Systems. In addition to that, Lockheed Martin is 1.43 times more volatile than BAE Systems PLC. It trades about 0.04 of its total potential returns per unit of risk. BAE Systems PLC is currently generating about 0.21 per unit of volatility. If you would invest 5,796 in BAE Systems PLC on October 23, 2024 and sell it today you would earn a total of 184.00 from holding BAE Systems PLC or generate 3.17% 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. BAE Systems PLC
Performance |
| Timeline |
| Lockheed Martin |
| BAE Systems PLC |
Lockheed Martin and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lockheed Martin and BAE Systems
The main advantage of trading using opposite Lockheed Martin and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lockheed Martin position performs unexpectedly, BAE Systems 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 BAE Systems will offset losses from the drop in BAE Systems' long position.| Lockheed Martin vs. Northrop Grumman | Lockheed Martin vs. General Dynamics | Lockheed Martin vs. L3Harris Technologies | Lockheed Martin vs. The Boeing |
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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