Correlation Between Northrop Grumman and Kongsberg Gruppen

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

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

Diversification Opportunities for Northrop Grumman and Kongsberg Gruppen

0.36

Correlation Coefficient

Northrop Grumman  Kongsberg Gruppen

Weak diversification

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

Pair Corralation between Northrop Grumman and Kongsberg Gruppen

Considering the 90-day investment horizon Northrop Grumman is expected to generate 4.92 times less return on investment than Kongsberg Gruppen. But when comparing it to its historical volatility, Northrop Grumman is 2.61 times less risky than Kongsberg Gruppen. It trades about 0.06 of its potential returns per unit of risk. Kongsberg Gruppen ASA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  11,596  in Kongsberg Gruppen ASA on December 22, 2024 and sell it today you would earn a total of  3,461  from holding Kongsberg Gruppen ASA or generate 29.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Northrop Grumman  vs.  Kongsberg Gruppen ASA

Northrop Grumman

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Northrop Grumman may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Kongsberg Gruppen ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kongsberg Gruppen ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Kongsberg Gruppen reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Kongsberg Gruppen

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

The idea behind Northrop Grumman and Kongsberg Gruppen ASA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.