Correlation Between General Dynamics and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both General Dynamics 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 General Dynamics and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Dynamics and Northrop Grumman, you can compare the effects of market volatilities on General Dynamics 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 General Dynamics with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Dynamics and Northrop Grumman.
Diversification Opportunities for General Dynamics and Northrop Grumman
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between General and Northrop is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and General Dynamics 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 General Dynamics 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 General Dynamics i.e., General Dynamics and Northrop Grumman go up and down completely randomly.
Pair Corralation between General Dynamics and Northrop Grumman
Assuming the 90 days trading horizon General Dynamics is expected to generate 1.05 times more return on investment than Northrop Grumman. However, General Dynamics is 1.05 times more volatile than Northrop Grumman. It trades about 0.03 of its potential returns per unit of risk. Northrop Grumman is currently generating about 0.03 per unit of risk. If you would invest 134,595 in General Dynamics on August 27, 2024 and sell it today you would earn a total of 28,568 from holding General Dynamics or generate 21.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 92.31% |
| Values | Daily Returns |
General Dynamics vs. Northrop Grumman
Performance |
| Timeline |
| General Dynamics |
| Northrop Grumman |
General Dynamics and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with General Dynamics and Northrop Grumman
The main advantage of trading using opposite General Dynamics and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics 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.| General Dynamics vs. Uber Technologies | General Dynamics vs. Dell Technologies | General Dynamics vs. Align Technology | General Dynamics vs. Marvell Technology |
| 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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