Correlation Between Northrop Grumman and Boeing
Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and Boeing 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 Boeing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman and The Boeing, you can compare the effects of market volatilities on Northrop Grumman and Boeing 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 Boeing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and Boeing.
Diversification Opportunities for Northrop Grumman and Boeing
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Northrop and Boeing is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Boeing go up and down completely randomly.
Pair Corralation between Northrop Grumman and Boeing
Assuming the 90 days trading horizon Northrop Grumman is expected to under-perform the Boeing. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 1.35 times less risky than Boeing. The stock trades about -0.03 of its potential returns per unit of risk. The The Boeing is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 89,600 in The Boeing on September 23, 2024 and sell it today you would earn a total of 20,163 from holding The Boeing or generate 22.5% 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. The Boeing
Performance |
Timeline |
Northrop Grumman |
Boeing |
Northrop Grumman and Boeing Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northrop Grumman and Boeing
The main advantage of trading using opposite Northrop Grumman and Boeing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, Boeing 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 Boeing will offset losses from the drop in Boeing's long position.Northrop Grumman vs. Paycom Software | Northrop Grumman vs. New Oriental Education | Northrop Grumman vs. STMicroelectronics NV | Northrop Grumman vs. TAL Education Group |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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