Correlation Between Lockheed Martin and Toyota

Can any of the company-specific risk be diversified away by investing in both Lockheed Martin and Toyota 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 Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lockheed Martin and Toyota Motor, you can compare the effects of market volatilities on Lockheed Martin and Toyota 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 Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lockheed Martin and Toyota.

Diversification Opportunities for Lockheed Martin and Toyota

-0.55

Correlation Coefficient

Lockheed Martin  Toyota

Excellent diversification

The 3 months correlation between Lockheed and Toyota is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor 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 Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Toyota go up and down completely randomly.

Pair Corralation between Lockheed Martin and Toyota

Assuming the 90 days trading horizon Lockheed Martin is expected to generate 6.44 times less return on investment than Toyota. In addition to that, Lockheed Martin is 1.04 times more volatile than Toyota Motor. It trades about 0.02 of its total potential returns per unit of risk. Toyota Motor is currently generating about 0.16 per unit of volatility. If you would invest  6,266  in Toyota Motor on September 4, 2024 and sell it today you would earn a total of  428.00  from holding Toyota Motor or generate 6.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Lockheed Martin  vs.  Toyota Motor

Lockheed Martin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lockheed Martin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lockheed Martin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Toyota Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lockheed Martin and Toyota

The main advantage of trading using opposite Lockheed Martin and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lockheed Martin position performs unexpectedly, Toyota 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 Toyota will offset losses from the drop in Toyota's long position.

The idea behind Lockheed Martin and Toyota Motor pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.