Correlation Between QinetiQ Group and Northrop Grumman

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

By analyzing existing cross correlation between QinetiQ Group plc and Northrop Grumman, you can compare the effects of market volatilities on QinetiQ Group and Northrop Grumman 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 QinetiQ Group with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of QinetiQ Group and Northrop Grumman.

Diversification Opportunities for QinetiQ Group and Northrop Grumman

-0.11

Correlation Coefficient

QinetiQ Group  Northrop Grumman

Good diversification

The 3 months correlation between QinetiQ and Northrop is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding QinetiQ Group plc and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and QinetiQ Group 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 QinetiQ Group plc are associated (or correlated) with Northrop Grumman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrop Grumman has no effect on the direction of QinetiQ Group i.e., QinetiQ Group and Northrop Grumman go up and down completely randomly.

Pair Corralation between QinetiQ Group and Northrop Grumman

Assuming the 90 days horizon QinetiQ Group plc is expected to generate 2.24 times more return on investment than Northrop Grumman. However, QinetiQ Group is 2.24 times more volatile than Northrop Grumman. It trades about 0.03 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.05 per unit of risk. If you would invest  494.00  in QinetiQ Group plc on December 1, 2024 and sell it today you would earn a total of  12.00  from holding QinetiQ Group plc or generate 2.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.33%
Values	Daily Returns

QinetiQ Group plc  vs.  Northrop Grumman

QinetiQ Group plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in QinetiQ Group plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, QinetiQ Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Northrop Grumman

Risk-Adjusted Performance

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 rather sound basic indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with QinetiQ Group and Northrop Grumman

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

The idea behind QinetiQ Group plc and Northrop Grumman 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.