Correlation Between Northrop Grumman and Boeing

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

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

Diversification Opportunities for Northrop Grumman and Boeing

-0.22

Correlation Coefficient

Northrop Grumman  Boeing

Very good diversification

The 3 months correlation between Northrop and Boeing is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Boeing go up and down completely randomly.

Pair Corralation between Northrop Grumman and Boeing

Assuming the 90 days trading horizon Northrop Grumman is expected to under-perform the Boeing. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 1.33 times less risky than Boeing. The stock trades about -0.21 of its potential returns per unit of risk. The The Boeing is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  105,162  in The Boeing on October 15, 2024 and sell it today you would lose (456.00) from holding The Boeing or give up 0.43% 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.  The Boeing

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. Despite somewhat strong fundamental indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Boeing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Boeing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Boeing

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

The idea behind Northrop Grumman and The Boeing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.