Correlation Between Northrop Grumman and SPORTING

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

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

Diversification Opportunities for Northrop Grumman and SPORTING

0.2

Correlation Coefficient

Northrop Grumman  SPORTING

Modest diversification

The 3 months correlation between Northrop and SPORTING is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and SPORTING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPORTING 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 SPORTING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPORTING has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and SPORTING go up and down completely randomly.

Pair Corralation between Northrop Grumman and SPORTING

Assuming the 90 days horizon Northrop Grumman is expected to under-perform the SPORTING. In addition to that, Northrop Grumman is 1.16 times more volatile than SPORTING. It trades about -0.03 of its total potential returns per unit of risk. SPORTING is currently generating about 0.12 per unit of volatility. If you would invest  98.00  in SPORTING on September 15, 2024 and sell it today you would earn a total of  9.00  from holding SPORTING or generate 9.18% return on investment over 90 days.

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

Northrop Grumman  vs.  SPORTING

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPORTING

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPORTING are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, SPORTING may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northrop Grumman and SPORTING

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

The idea behind Northrop Grumman and SPORTING 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .