Correlation Between Northrop Grumman and Rocket Lab

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

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

Diversification Opportunities for Northrop Grumman and Rocket Lab

-0.84

Correlation Coefficient

Northrop Grumman  Rocket Lab

Pay attention - limited upside

The 3 months correlation between Northrop and Rocket is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Rocket Lab USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocket Lab USA 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 Rocket Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocket Lab USA has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Rocket Lab go up and down completely randomly.

Pair Corralation between Northrop Grumman and Rocket Lab

Considering the 90-day investment horizon Northrop Grumman is expected to under-perform the Rocket Lab. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 6.62 times less risky than Rocket Lab. The stock trades about -0.42 of its potential returns per unit of risk. The Rocket Lab USA is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  1,478  in Rocket Lab USA on September 12, 2024 and sell it today you would earn a total of  855.00  from holding Rocket Lab USA or generate 57.85% return on investment over 90 days.

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

Northrop Grumman  vs.  Rocket Lab USA

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.

Rocket Lab USA

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Lab USA are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, Rocket Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Rocket Lab

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

The idea behind Northrop Grumman and Rocket Lab USA 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 Commodity Directory module to find actively traded commodities issued by global exchanges.