Correlation Between Lockheed Martin and Park Aerospace

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

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

Diversification Opportunities for Lockheed Martin and Park Aerospace

-0.6

Correlation Coefficient

Lockheed Martin  Park Aerospace

Excellent diversification

The 3 months correlation between Lockheed and Park is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Park Aerospace Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Aerospace Corp 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 Park Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Aerospace Corp has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Park Aerospace go up and down completely randomly.

Pair Corralation between Lockheed Martin and Park Aerospace

Assuming the 90 days horizon Lockheed Martin is expected to under-perform the Park Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Lockheed Martin is 1.48 times less risky than Park Aerospace. The stock trades about -0.08 of its potential returns per unit of risk. The Park Aerospace Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,138  in Park Aerospace Corp on September 30, 2024 and sell it today you would earn a total of  272.00  from holding Park Aerospace Corp or generate 23.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Lockheed Martin  vs.  Park Aerospace Corp

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Park Aerospace Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Park Aerospace Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Park Aerospace reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lockheed Martin and Park Aerospace

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

The idea behind Lockheed Martin and Park Aerospace Corp 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.