Correlation Between Northrop Grumman and Hensoldt

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

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

Diversification Opportunities for Northrop Grumman and Hensoldt

-0.56

Correlation Coefficient

Northrop Grumman  Hensoldt

Excellent diversification

The 3 months correlation between Northrop and Hensoldt is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Hensoldt AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hensoldt AG 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 Hensoldt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hensoldt AG has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Hensoldt go up and down completely randomly.

Pair Corralation between Northrop Grumman and Hensoldt

Considering the 90-day investment horizon Northrop Grumman is expected to under-perform the Hensoldt. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 2.51 times less risky than Hensoldt. The stock trades about -0.11 of its potential returns per unit of risk. The Hensoldt AG is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,375  in Hensoldt AG on September 15, 2024 and sell it today you would earn a total of  576.00  from holding Hensoldt AG or generate 17.07% return on investment over 90 days.

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

Northrop Grumman  vs.  Hensoldt AG

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.

Hensoldt AG

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hensoldt AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Hensoldt reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Hensoldt

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

The idea behind Northrop Grumman and Hensoldt AG 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 Global Correlations module to find global opportunities by holding instruments from different markets.