Correlation Between Huntington Ingalls and Northrop Grumman

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

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

Diversification Opportunities for Huntington Ingalls and Northrop Grumman

0.1

Correlation Coefficient

Huntington Ingalls  Northrop Grumman

Average diversification

The 3 months correlation between Huntington and Northrop is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Huntington Ingalls Industries, and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Huntington Ingalls 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 Huntington Ingalls Industries, 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 Huntington Ingalls i.e., Huntington Ingalls and Northrop Grumman go up and down completely randomly.

Pair Corralation between Huntington Ingalls and Northrop Grumman

Assuming the 90 days trading horizon Huntington Ingalls Industries, is expected to generate 2.21 times more return on investment than Northrop Grumman. However, Huntington Ingalls is 2.21 times more volatile than Northrop Grumman. It trades about 0.0 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.21 per unit of risk. If you would invest  1,518  in Huntington Ingalls Industries, on October 15, 2024 and sell it today you would lose (6.00) from holding Huntington Ingalls Industries, or give up 0.4% of portfolio value over 90 days.

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

Huntington Ingalls Industries,  vs.  Northrop Grumman

Huntington Ingalls

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huntington Ingalls Industries, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Huntington Ingalls and Northrop Grumman

The main advantage of trading using opposite Huntington Ingalls and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huntington Ingalls 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 Huntington Ingalls Industries, 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.