Correlation Between Northrop Grumman and Airbus SE

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

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

Diversification Opportunities for Northrop Grumman and Airbus SE

-0.42

Correlation Coefficient

Northrop Grumman  Airbus SE

Very good diversification

The 3 months correlation between Northrop and Airbus is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Airbus SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airbus SE 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 Airbus SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airbus SE has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Airbus SE go up and down completely randomly.

Pair Corralation between Northrop Grumman and Airbus SE

Assuming the 90 days horizon Northrop Grumman is expected to under-perform the Airbus SE. But the stock apears to be less risky and, when comparing its historical volatility, Northrop Grumman is 1.13 times less risky than Airbus SE. The stock trades about -0.02 of its potential returns per unit of risk. The Airbus SE is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,030  in Airbus SE on September 13, 2024 and sell it today you would earn a total of  2,598  from holding Airbus SE or generate 19.94% 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.  Airbus SE

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. Despite nearly stable basic indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Airbus SE

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Airbus SE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Airbus SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrop Grumman and Airbus SE

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

The idea behind Northrop Grumman and Airbus SE 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.