Correlation Between Northrop Grumman and Raytheon Technologies

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

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

Diversification Opportunities for Northrop Grumman and Raytheon Technologies

0.49

Correlation Coefficient

Northrop Grumman  Raytheon Technologies

Very weak diversification

The 3 months correlation between Northrop and Raytheon is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Raytheon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Northrop Grumman and Raytheon Technologies

Considering the 90-day investment horizon Northrop Grumman is expected to generate 1.36 times less return on investment than Raytheon Technologies. In addition to that, Northrop Grumman is 1.21 times more volatile than Raytheon Technologies Corp. It trades about 0.1 of its total potential returns per unit of risk. Raytheon Technologies Corp is currently generating about 0.17 per unit of volatility. If you would invest  11,464  in Raytheon Technologies Corp on December 29, 2024 and sell it today you would earn a total of  1,708  from holding Raytheon Technologies Corp or generate 14.9% return on investment over 90 days.

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

Northrop Grumman  vs.  Raytheon Technologies Corp

Northrop Grumman

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 8 (%) 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.

Raytheon Technologies

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Raytheon Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Raytheon Technologies

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

The idea behind Northrop Grumman and Raytheon Technologies Corp 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.