Correlation Between Northrop Grumman and BRASIL ON

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Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and BRASIL ON 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 BRASIL ON into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman Corp and BRASIL ON NM, you can compare the effects of market volatilities on Northrop Grumman and BRASIL ON 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 BRASIL ON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and BRASIL ON.

Diversification Opportunities for Northrop Grumman and BRASIL ON

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between Northrop and BRASIL is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman Corp and BRASIL ON NM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRASIL ON NM 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 Corp are associated (or correlated) with BRASIL ON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRASIL ON NM has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and BRASIL ON go up and down completely randomly.

Pair Corralation between Northrop Grumman and BRASIL ON

Considering the 90-day investment horizon Northrop Grumman is expected to generate 2.56 times less return on investment than BRASIL ON. But when comparing it to its historical volatility, Northrop Grumman Corp is 1.19 times less risky than BRASIL ON. It trades about 0.27 of its potential returns per unit of risk. BRASIL ON NM is currently generating about 0.58 of returns per unit of risk over similar time horizon. If you would invest  3,375  in BRASIL ON NM on May 19, 2022 and sell it today you would earn a total of  906.00  from holding BRASIL ON NM or generate 26.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Northrop Grumman Corp  vs.  BRASIL ON NM

 Performance (%) 
       Timeline  
Northrop Grumman Corp 
Northrop Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Northrop Grumman may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Northrop Price Channel

BRASIL ON NM 
BRASIL Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in BRASIL ON NM are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BRASIL ON reported solid returns over the last few months and may actually be approaching a breakup point.

BRASIL Price Channel

Northrop Grumman and BRASIL ON Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Northrop Grumman and BRASIL ON

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

BRASIL ON NM

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against BRASIL ON as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. BRASIL ON's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, BRASIL ON's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to BRASIL ON NM.
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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