Correlation Between Raytheon Technologies and Northrop Grumman
Can any of the company-specific risk be diversified away by investing in both Raytheon Technologies 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 Raytheon Technologies and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Raytheon Technologies and Northrop Grumman, you can compare the effects of market volatilities on Raytheon Technologies 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 Raytheon Technologies with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Northrop Grumman.
Diversification Opportunities for Raytheon Technologies and Northrop Grumman
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Raytheon and Northrop is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Raytheon Technologies 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 Raytheon Technologies 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 Raytheon Technologies i.e., Raytheon Technologies and Northrop Grumman go up and down completely randomly.
Pair Corralation between Raytheon Technologies and Northrop Grumman
Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 0.86 times more return on investment than Northrop Grumman. However, Raytheon Technologies is 1.16 times less risky than Northrop Grumman. It trades about -0.15 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.32 per unit of risk. If you would invest 12,201 in Raytheon Technologies on November 18, 2024 and sell it today you would lose (633.00) from holding Raytheon Technologies or give up 5.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Raytheon Technologies vs. Northrop Grumman
Performance |
| Timeline |
| Raytheon Technologies |
| Northrop Grumman |
Raytheon Technologies and Northrop Grumman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Raytheon Technologies and Northrop Grumman
The main advantage of trading using opposite Raytheon Technologies and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Raytheon Technologies 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.| Raytheon Technologies vs. Vulcan Materials | Raytheon Technologies vs. HDFC Bank Limited | Raytheon Technologies vs. salesforce inc | Raytheon Technologies vs. CRISPR Therapeutics AG |
| Northrop Grumman vs. Raytheon Technologies | Northrop Grumman vs. The Boeing | Northrop Grumman vs. Lockheed Martin | Northrop Grumman vs. General Dynamics |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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