Correlation Between Northrop Grumman and New Horizon

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

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

Diversification Opportunities for Northrop Grumman and New Horizon

-0.4

Correlation Coefficient

Northrop Grumman  New Horizon

Very good diversification

The 3 months correlation between Northrop and New is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and New Horizon Aircraft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Horizon Aircraft 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 New Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Horizon Aircraft has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and New Horizon go up and down completely randomly.

Pair Corralation between Northrop Grumman and New Horizon

Considering the 90-day investment horizon Northrop Grumman is expected to generate 0.13 times more return on investment than New Horizon. However, Northrop Grumman is 7.98 times less risky than New Horizon. It trades about 0.02 of its potential returns per unit of risk. New Horizon Aircraft is currently generating about -0.03 per unit of risk. If you would invest  44,314  in Northrop Grumman on September 12, 2024 and sell it today you would earn a total of  3,704  from holding Northrop Grumman or generate 8.36% return on investment over 90 days.

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

Northrop Grumman  vs.  New Horizon Aircraft

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.

New Horizon Aircraft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Horizon Aircraft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, New Horizon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and New Horizon

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

The idea behind Northrop Grumman and New Horizon Aircraft 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.