Correlation Between Northrop Grumman and Ducommun Incorporated

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

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

Diversification Opportunities for Northrop Grumman and Ducommun Incorporated

-0.01

Correlation Coefficient

Northrop Grumman  Ducommun Incorporated

Good diversification

The 3 months correlation between Northrop and Ducommun is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Ducommun Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ducommun Incorporated 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 Ducommun Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ducommun Incorporated has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Ducommun Incorporated go up and down completely randomly.

Pair Corralation between Northrop Grumman and Ducommun Incorporated

Considering the 90-day investment horizon Northrop Grumman is expected to under-perform the Ducommun Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 1.63 times less risky than Ducommun Incorporated. The stock trades about -0.09 of its potential returns per unit of risk. The Ducommun Incorporated is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,315  in Ducommun Incorporated on September 3, 2024 and sell it today you would earn a total of  385.00  from holding Ducommun Incorporated or generate 6.1% return on investment over 90 days.

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

Northrop Grumman  vs.  Ducommun Incorporated

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 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.

Ducommun Incorporated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ducommun Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Ducommun Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northrop Grumman and Ducommun Incorporated

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

The idea behind Northrop Grumman and Ducommun Incorporated 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..