Correlation Between Northrop Grumman and AeroVironment
Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and AeroVironment 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 Northrop Grumman and AeroVironment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman and AeroVironment, you can compare the effects of market volatilities on Northrop Grumman and AeroVironment 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 Northrop Grumman with a short position of AeroVironment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and AeroVironment.
Diversification Opportunities for Northrop Grumman and AeroVironment
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northrop and AeroVironment is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and Northrop Grumman 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 Northrop Grumman are associated (or correlated) with AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and AeroVironment go up and down completely randomly.
Pair Corralation between Northrop Grumman and AeroVironment
Considering the 90-day investment horizon Northrop Grumman is expected to generate 1.07 times more return on investment than AeroVironment. However, Northrop Grumman is 1.07 times more volatile than AeroVironment. It trades about 0.26 of its potential returns per unit of risk. AeroVironment is currently generating about 0.18 per unit of risk. If you would invest 46,720 in Northrop Grumman on October 23, 2024 and sell it today you would earn a total of 3,725 from holding Northrop Grumman or generate 7.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 94.74% |
| Values | Daily Returns |
Northrop Grumman vs. AeroVironment
Performance |
| Timeline |
| Northrop Grumman |
| AeroVironment |
Northrop Grumman and AeroVironment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northrop Grumman and AeroVironment
The main advantage of trading using opposite Northrop Grumman and AeroVironment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, AeroVironment 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 AeroVironment will offset losses from the drop in AeroVironment's long position.| Northrop Grumman vs. Raytheon Technologies Corp | Northrop Grumman vs. General Dynamics | Northrop Grumman vs. The Boeing | Northrop Grumman vs. L3Harris Technologies |
| AeroVironment vs. L3Harris Technologies | AeroVironment vs. Mercury Systems | AeroVironment vs. Textron | AeroVironment vs. HEICO |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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