Correlation Between Dow Jones and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Northrop Grumman, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Northrop Grumman.
Diversification Opportunities for Dow Jones and Northrop Grumman
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Northrop is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Northrop Grumman go up and down completely randomly.
Pair Corralation between Dow Jones and Northrop Grumman
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.52 times more return on investment than Northrop Grumman. However, Dow Jones Industrial is 1.93 times less risky than Northrop Grumman. It trades about 0.22 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.05 per unit of risk. If you would invest 4,238,757 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 190,894 from holding Dow Jones Industrial or generate 4.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Dow Jones Industrial vs. Northrop Grumman
Performance |
| Timeline |
Dow Jones and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Northrop Grumman
Pair trading matchups for Northrop Grumman
Pair Trading with Dow Jones and Northrop Grumman
The main advantage of trading using opposite Dow Jones and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
| Northrop Grumman vs. salesforce inc | Northrop Grumman vs. Healthpeak Properties | Northrop Grumman vs. Bemobi Mobile Tech | Northrop Grumman vs. Zoom Video Communications |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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