Correlation Between Curtiss Wright and Northrop Grumman

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

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

Diversification Opportunities for Curtiss Wright and Northrop Grumman

0.71

Correlation Coefficient

Curtiss Wright  Northrop Grumman

Poor diversification

The 3 months correlation between Curtiss and Northrop is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Curtiss Wright and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Curtiss Wright 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 Curtiss Wright 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 Curtiss Wright i.e., Curtiss Wright and Northrop Grumman go up and down completely randomly.

Pair Corralation between Curtiss Wright and Northrop Grumman

Allowing for the 90-day total investment horizon Curtiss Wright is expected to under-perform the Northrop Grumman. In addition to that, Curtiss Wright is 1.59 times more volatile than Northrop Grumman. It trades about -0.08 of its total potential returns per unit of risk. Northrop Grumman is currently generating about -0.05 per unit of volatility. If you would invest  48,475  in Northrop Grumman on December 1, 2024 and sell it today you would lose (2,301) from holding Northrop Grumman or give up 4.75% of portfolio value over 90 days.

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

Curtiss Wright  vs.  Northrop Grumman

Curtiss Wright

Risk-Adjusted Performance

Very Weak

Over the last 90 days Curtiss Wright has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Northrop Grumman

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northrop Grumman has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Curtiss Wright and Northrop Grumman

The main advantage of trading using opposite Curtiss Wright and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Curtiss Wright 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 Curtiss Wright 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.