Correlation Between Lockheed Martin and Quest Diagnostics

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

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

Diversification Opportunities for Lockheed Martin and Quest Diagnostics

-0.74

Correlation Coefficient

Lockheed Martin  Quest Diagnostics

Pay attention - limited upside

The 3 months correlation between Lockheed and Quest is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Lockheed Martin and Quest Diagnostics Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quest Diagnostics 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 Quest Diagnostics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quest Diagnostics has no effect on the direction of Lockheed Martin i.e., Lockheed Martin and Quest Diagnostics go up and down completely randomly.

Pair Corralation between Lockheed Martin and Quest Diagnostics

Considering the 90-day investment horizon Lockheed Martin is expected to under-perform the Quest Diagnostics. In addition to that, Lockheed Martin is 1.08 times more volatile than Quest Diagnostics Incorporated. It trades about -0.19 of its total potential returns per unit of risk. Quest Diagnostics Incorporated is currently generating about 0.18 per unit of volatility. If you would invest  15,712  in Quest Diagnostics Incorporated on August 24, 2024 and sell it today you would earn a total of  677.00  from holding Quest Diagnostics Incorporated or generate 4.31% 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.  Quest Diagnostics Incorporated

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 comparatively stable primary indicators, Lockheed Martin is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Quest Diagnostics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Quest Diagnostics Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Quest Diagnostics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Lockheed Martin and Quest Diagnostics

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

The idea behind Lockheed Martin and Quest Diagnostics Incorporated 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.