Correlation Between Ford and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Northrop Grumman, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Northrop Grumman.
Diversification Opportunities for Ford and Northrop Grumman
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and Northrop is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Ford 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 Ford Motor 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 Ford i.e., Ford and Northrop Grumman go up and down completely randomly.
Pair Corralation between Ford and Northrop Grumman
Taking into account the 90-day investment horizon Ford is expected to generate 1.64 times less return on investment than Northrop Grumman. In addition to that, Ford is 1.48 times more volatile than Northrop Grumman. It trades about 0.01 of its total potential returns per unit of risk. Northrop Grumman is currently generating about 0.03 per unit of volatility. If you would invest 49,032 in Northrop Grumman on August 27, 2024 and sell it today you would earn a total of 8,098 from holding Northrop Grumman or generate 16.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Ford Motor vs. Northrop Grumman
Performance |
| Timeline |
| Ford Motor |
| Northrop Grumman |
Ford and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Northrop Grumman
The main advantage of trading using opposite Ford and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.The idea behind Ford Motor and Northrop Grumman 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.| 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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