Correlation Between Northrop Grumman and Archer Aviation

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

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

Diversification Opportunities for Northrop Grumman and Archer Aviation

-0.36

Correlation Coefficient

Northrop Grumman  Archer Aviation

Very good diversification

The 3 months correlation between Northrop and Archer is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Archer Aviation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archer Aviation 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 Archer Aviation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archer Aviation has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Archer Aviation go up and down completely randomly.

Pair Corralation between Northrop Grumman and Archer Aviation

Considering the 90-day investment horizon Northrop Grumman is expected to under-perform the Archer Aviation. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 3.94 times less risky than Archer Aviation. The stock trades about -0.15 of its potential returns per unit of risk. The Archer Aviation is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  945.00  in Archer Aviation on December 2, 2024 and sell it today you would lose (57.00) from holding Archer Aviation or give up 6.03% of portfolio value over 90 days.

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

Northrop Grumman  vs.  Archer Aviation

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.

Archer Aviation

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Archer Aviation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical indicators, Archer Aviation reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Archer Aviation

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

The idea behind Northrop Grumman and Archer Aviation 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.