Correlation Between Delta Air and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both Delta Air 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 Delta Air and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Delta Air Lines and Northrop Grumman, you can compare the effects of market volatilities on Delta Air 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 Delta Air with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delta Air and Northrop Grumman.
Diversification Opportunities for Delta Air and Northrop Grumman
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Delta and Northrop is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Delta Air 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 Delta Air Lines 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 Delta Air i.e., Delta Air and Northrop Grumman go up and down completely randomly.
Pair Corralation between Delta Air and Northrop Grumman
Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.57 times more return on investment than Northrop Grumman. However, Delta Air is 1.57 times more volatile than Northrop Grumman. It trades about 0.23 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.12 per unit of risk. If you would invest 32,890 in Delta Air Lines on August 30, 2024 and sell it today you would earn a total of 4,640 from holding Delta Air Lines or generate 14.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Delta Air Lines vs. Northrop Grumman
Performance |
| Timeline |
| Delta Air Lines |
| Northrop Grumman |
Delta Air and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Delta Air and Northrop Grumman
The main advantage of trading using opposite Delta Air and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta Air 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.| Delta Air vs. Zoom Video Communications | Delta Air vs. NXP Semiconductors NV | Delta Air vs. Ross Stores | Delta Air vs. Spotify Technology SA |
| Northrop Grumman vs. Raytheon Technologies | Northrop Grumman vs. The Boeing | Northrop Grumman vs. Lockheed Martin | Northrop Grumman vs. General Dynamics |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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