Correlation Between Northrop Grumman and HEICO
Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and HEICO 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 HEICO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman and HEICO, you can compare the effects of market volatilities on Northrop Grumman and HEICO 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 HEICO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and HEICO.
Diversification Opportunities for Northrop Grumman and HEICO
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northrop and HEICO is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and HEICO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEICO 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 HEICO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEICO has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and HEICO go up and down completely randomly.
Pair Corralation between Northrop Grumman and HEICO
Considering the 90-day investment horizon Northrop Grumman is expected to under-perform the HEICO. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 1.19 times less risky than HEICO. The stock trades about -0.1 of its potential returns per unit of risk. The HEICO is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 19,435 in HEICO on August 31, 2024 and sell it today you would earn a total of 1,601 from holding HEICO or generate 8.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northrop Grumman vs. HEICO
Performance |
| Timeline |
| Northrop Grumman |
| HEICO |
Northrop Grumman and HEICO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northrop Grumman and HEICO
The main advantage of trading using opposite Northrop Grumman and HEICO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, HEICO 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 HEICO will offset losses from the drop in HEICO's long position.| Northrop Grumman vs. Raytheon Technologies Corp | Northrop Grumman vs. General Dynamics | Northrop Grumman vs. The Boeing | Northrop Grumman vs. L3Harris Technologies |
| HEICO vs. Vertical Aerospace | HEICO vs. Rolls Royce Holdings plc | HEICO vs. Embraer SA ADR | HEICO vs. Rocket Lab USA |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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