Correlation Between Northrop Grumman and Thales SA

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

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

Diversification Opportunities for Northrop Grumman and Thales SA

0.35

Correlation Coefficient

Northrop Grumman  Thales SA

Weak diversification

The 3 months correlation between Northrop and Thales is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Thales SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thales SA ADR 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 Thales SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thales SA ADR has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Thales SA go up and down completely randomly.

Pair Corralation between Northrop Grumman and Thales SA

Considering the 90-day investment horizon Northrop Grumman is expected to generate 6.19 times less return on investment than Thales SA. But when comparing it to its historical volatility, Northrop Grumman is 2.11 times less risky than Thales SA. It trades about 0.1 of its potential returns per unit of risk. Thales SA ADR is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,859  in Thales SA ADR on December 29, 2024 and sell it today you would earn a total of  2,466  from holding Thales SA ADR or generate 86.25% return on investment over 90 days.

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

Northrop Grumman  vs.  Thales SA ADR

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.

Thales SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thales SA ADR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Thales SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Thales SA

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

The idea behind Northrop Grumman and Thales SA ADR 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.