Correlation Between Northrop Grumman and AAC Clyde

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

By analyzing existing cross correlation between Northrop Grumman and AAC Clyde Space, you can compare the effects of market volatilities on Northrop Grumman and AAC Clyde 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 AAC Clyde. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and AAC Clyde.

Diversification Opportunities for Northrop Grumman and AAC Clyde

-0.79

Correlation Coefficient

Northrop Grumman  AAC Clyde

Pay attention - limited upside

The 3 months correlation between Northrop and AAC is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and AAC Clyde Space in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAC Clyde Space 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 AAC Clyde. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAC Clyde Space has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and AAC Clyde go up and down completely randomly.

Pair Corralation between Northrop Grumman and AAC Clyde

Considering the 90-day investment horizon Northrop Grumman is expected to under-perform the AAC Clyde. In addition to that, Northrop Grumman is 2.36 times more volatile than AAC Clyde Space. It trades about -0.13 of its total potential returns per unit of risk. AAC Clyde Space is currently generating about -0.14 per unit of volatility. If you would invest  415.00  in AAC Clyde Space on September 16, 2024 and sell it today you would lose (5.00) from holding AAC Clyde Space or give up 1.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Northrop Grumman  vs.  AAC Clyde Space

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. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

AAC Clyde Space

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAC Clyde Space are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent primary indicators, AAC Clyde reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and AAC Clyde

The main advantage of trading using opposite Northrop Grumman and AAC Clyde positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, AAC Clyde 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 AAC Clyde will offset losses from the drop in AAC Clyde's long position.

The idea behind Northrop Grumman and AAC Clyde Space 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.