Correlation Between Appian Corp and Northrop Grumman

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

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

Diversification Opportunities for Appian Corp and Northrop Grumman

-0.6

Correlation Coefficient

Appian Corp  Northrop Grumman

Excellent diversification

The 3 months correlation between Appian and Northrop is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Appian Corp and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Appian Corp 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 Appian Corp 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 Appian Corp i.e., Appian Corp and Northrop Grumman go up and down completely randomly.

Pair Corralation between Appian Corp and Northrop Grumman

Given the investment horizon of 90 days Appian Corp is expected to generate 2.28 times more return on investment than Northrop Grumman. However, Appian Corp is 2.28 times more volatile than Northrop Grumman. It trades about 0.08 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.15 per unit of risk. If you would invest  3,341  in Appian Corp on September 20, 2024 and sell it today you would earn a total of  405.00  from holding Appian Corp or generate 12.12% return on investment over 90 days.

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

Appian Corp  vs.  Northrop Grumman

Appian Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Appian Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Appian Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Appian Corp and Northrop Grumman

The main advantage of trading using opposite Appian Corp and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Appian Corp 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 Appian Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.