Correlation Between BP Plc and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both BP Plc 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 BP Plc and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP plc and Northrop Grumman, you can compare the effects of market volatilities on BP Plc 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 BP Plc with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Northrop Grumman.
Diversification Opportunities for BP Plc and Northrop Grumman
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between B1PP34 and Northrop is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and BP Plc 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 BP plc 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 BP Plc i.e., BP Plc and Northrop Grumman go up and down completely randomly.
Pair Corralation between BP Plc and Northrop Grumman
Assuming the 90 days trading horizon BP plc is expected to generate 1.24 times more return on investment than Northrop Grumman. However, BP Plc is 1.24 times more volatile than Northrop Grumman. It trades about 0.02 of its potential returns per unit of risk. Northrop Grumman is currently generating about 0.02 per unit of risk. If you would invest 4,694 in BP plc on November 19, 2024 and sell it today you would earn a total of 281.00 from holding BP plc or generate 5.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
BP plc vs. Northrop Grumman
Performance |
| Timeline |
| BP plc |
| Northrop Grumman |
BP Plc and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP Plc and Northrop Grumman
The main advantage of trading using opposite BP Plc and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Plc 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.| BP Plc vs. Tres Tentos Agroindustrial | BP Plc vs. Multilaser Industrial SA | BP Plc vs. Liberty Broadband | BP Plc vs. MAHLE Metal Leve |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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