Correlation Between Boeing and Northrop Grumman

Can any of the company-specific risk be diversified away by investing in both Boeing 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 Boeing and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Boeing and Northrop Grumman, you can compare the effects of market volatilities on Boeing 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 Boeing with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and Northrop Grumman.

Diversification Opportunities for Boeing and Northrop Grumman

-0.22

Correlation Coefficient

Boeing  Northrop Grumman

Very good diversification

The 3 months correlation between Boeing and Northrop is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Boeing 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 The Boeing 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 Boeing i.e., Boeing and Northrop Grumman go up and down completely randomly.

Pair Corralation between Boeing and Northrop Grumman

Assuming the 90 days trading horizon The Boeing is expected to generate 1.5 times more return on investment than Northrop Grumman. However, Boeing is 1.5 times more volatile than Northrop Grumman. It trades about 0.19 of its potential returns per unit of risk. Northrop Grumman is currently generating about 0.01 per unit of risk. If you would invest  85,000  in The Boeing on September 27, 2024 and sell it today you would earn a total of  24,188  from holding The Boeing or generate 28.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

The Boeing  vs.  Northrop Grumman

Boeing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Boeing sustained solid returns over the last few months and may actually be approaching a breakup point.

Northrop Grumman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northrop Grumman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Boeing and Northrop Grumman

The main advantage of trading using opposite Boeing and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing 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.

The idea behind The Boeing and Northrop Grumman pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.