Correlation Between Rheinmetall and Lockheed Martin

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

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

Diversification Opportunities for Rheinmetall and Lockheed Martin

-0.54

Correlation Coefficient

Rheinmetall  Lockheed Martin

Excellent diversification

The 3 months correlation between Rheinmetall and Lockheed is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Lockheed Martin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lockheed Martin and Rheinmetall 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 Rheinmetall AG are associated (or correlated) with Lockheed Martin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lockheed Martin has no effect on the direction of Rheinmetall i.e., Rheinmetall and Lockheed Martin go up and down completely randomly.

Pair Corralation between Rheinmetall and Lockheed Martin

Assuming the 90 days horizon Rheinmetall AG is expected to generate 2.13 times more return on investment than Lockheed Martin. However, Rheinmetall is 2.13 times more volatile than Lockheed Martin. It trades about 0.07 of its potential returns per unit of risk. Lockheed Martin is currently generating about -0.1 per unit of risk. If you would invest  58,900  in Rheinmetall AG on September 4, 2024 and sell it today you would earn a total of  7,000  from holding Rheinmetall AG or generate 11.88% return on investment over 90 days.

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

Rheinmetall AG  vs.  Lockheed Martin

Rheinmetall AG

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental drivers, Rheinmetall reported solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest unsteady performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Rheinmetall and Lockheed Martin

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

The idea behind Rheinmetall AG and Lockheed Martin 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.