Correlation Between Lockheed Martin and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both Lockheed Martin and Northrop Grumman 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 Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lockheed Martin and Northrop Grumman, you can compare the effects of market volatilities on Lockheed Martin and Northrop Grumman 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 Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lockheed Martin and Northrop Grumman.
Diversification Opportunities for Lockheed Martin and Northrop Grumman
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lockheed and Northrop is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman 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 Northrop Grumman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrop Grumman has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Northrop Grumman go up and down completely randomly.
Pair Corralation between Lockheed Martin and Northrop Grumman
Assuming the 90 days trading horizon Lockheed Martin is expected to generate 1.24 times more return on investment than Northrop Grumman. However, Lockheed Martin is 1.24 times more volatile than Northrop Grumman. It trades about 0.04 of its potential returns per unit of risk. Northrop Grumman is currently generating about 0.03 per unit of risk. If you would invest 248,909 in Lockheed Martin on August 23, 2024 and sell it today you would earn a total of 67,890 from holding Lockheed Martin or generate 27.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 87.04% |
| Values | Daily Returns |
Lockheed Martin vs. Northrop Grumman
Performance |
| Timeline |
| Lockheed Martin |
| Northrop Grumman |
Lockheed Martin and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lockheed Martin and Northrop Grumman
The main advantage of trading using opposite Lockheed Martin and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lockheed Martin position performs unexpectedly, Northrop Grumman 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 Northrop Grumman will offset losses from the drop in Northrop Grumman's long position.| Lockheed Martin vs. Raytheon Technologies | Lockheed Martin vs. The Boeing | Lockheed Martin vs. Northrop Grumman |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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