Correlation Between Northrop Grumman and General Dynamics
Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and General Dynamics 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 General Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman and General Dynamics, you can compare the effects of market volatilities on Northrop Grumman and General Dynamics 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 General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and General Dynamics.
Diversification Opportunities for Northrop Grumman and General Dynamics
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northrop and General is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics 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 General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and General Dynamics go up and down completely randomly.
Pair Corralation between Northrop Grumman and General Dynamics
Assuming the 90 days horizon Northrop Grumman is expected to generate 0.72 times more return on investment than General Dynamics. However, Northrop Grumman is 1.38 times less risky than General Dynamics. It trades about -0.01 of its potential returns per unit of risk. General Dynamics is currently generating about -0.09 per unit of risk. If you would invest 47,930 in Northrop Grumman on August 28, 2024 and sell it today you would lose (230.00) from holding Northrop Grumman or give up 0.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northrop Grumman vs. General Dynamics
Performance |
| Timeline |
| Northrop Grumman |
| General Dynamics |
Northrop Grumman and General Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northrop Grumman and General Dynamics
The main advantage of trading using opposite Northrop Grumman and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, General Dynamics 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 General Dynamics will offset losses from the drop in General Dynamics' long position.| Northrop Grumman vs. Raytheon Technologies Corp | Northrop Grumman vs. The Boeing | Northrop Grumman vs. The Boeing | Northrop Grumman vs. Airbus SE |
| General Dynamics vs. AUSTEVOLL SEAFOOD | General Dynamics vs. Beyond Meat | General Dynamics vs. TYSON FOODS A | General Dynamics vs. Austevoll Seafood ASA |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
Other Complementary Tools
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities |