Correlation Between Northrop Grumman and Parker-Hannifin Corp

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Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and Parker-Hannifin Corp 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 Parker-Hannifin Corp 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 Parker-Hannifin Corp, you can compare the effects of market volatilities on Northrop Grumman and Parker-Hannifin Corp 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 Parker-Hannifin Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and Parker-Hannifin Corp.

Diversification Opportunities for Northrop Grumman and Parker-Hannifin Corp

0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between Northrop and Parker-Hannifin is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman Corp and Parker-Hannifin Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parker-Hannifin Corp 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 Parker-Hannifin Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parker-Hannifin Corp has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Parker-Hannifin Corp go up and down completely randomly.

Pair Corralation between Northrop Grumman and Parker-Hannifin Corp

Considering the 90-day investment horizon Northrop Grumman Corp is expected to generate 0.83 times more return on investment than Parker-Hannifin Corp. However, Northrop Grumman Corp is 1.21 times less risky than Parker-Hannifin Corp. It trades about 0.06 of its potential returns per unit of risk. Parker-Hannifin Corp is currently generating about 0.05 per unit of risk. If you would invest  30,189  in Northrop Grumman Corp on March 28, 2022 and sell it today you would earn a total of  16,181  from holding Northrop Grumman Corp or generate 53.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Northrop Grumman Corp  vs.  Parker-Hannifin Corp

 Performance (%) 
      Timeline 
Northrop Grumman Corp 
Northrop Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0149
Payout Ratio
0.26
Last Split Factor
10000:9035
Forward Annual Dividend Rate
6.92
Dividend Date
2022-06-15
Ex Dividend Date
2022-05-27
Last Split Date
2011-03-31

Northrop Price Channel

Parker-Hannifin Corp 
Parker-Hannifin Performance
0 of 100
Over the last 90 days Parker-Hannifin Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.022
Payout Ratio
0.25
Last Split Factor
3:2
Forward Annual Dividend Rate
5.32
Dividend Date
2022-06-03
Ex Dividend Date
2022-05-12
Last Split Date
2007-10-02

Parker-Hannifin Price Channel

Northrop Grumman and Parker-Hannifin Corp Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Northrop Grumman and Parker-Hannifin Corp

The main advantage of trading using opposite Northrop Grumman and Parker-Hannifin Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, Parker-Hannifin Corp 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 Parker-Hannifin Corp will offset losses from the drop in Parker-Hannifin Corp's long position.
The idea behind Northrop Grumman Corp and Parker-Hannifin Corp 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.
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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