Correlation Between Northrop Grumman and IQ Hedge

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

Diversification Opportunities for Northrop Grumman and IQ Hedge

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Northrop and IQ Hedge is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman Corp and IQ Hedge Multi-Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ Hedge Multi-Strategy 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 IQ Hedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ Hedge Multi-Strategy has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and IQ Hedge go up and down completely randomly.

Pair Corralation between Northrop Grumman and IQ Hedge

Considering the 90-day investment horizon Northrop Grumman Corp is expected to generate 3.93 times more return on investment than IQ Hedge. However, Northrop Grumman is 3.93 times more volatile than IQ Hedge Multi-Strategy. It trades about 0.06 of its potential returns per unit of risk. IQ Hedge Multi-Strategy is currently generating about -0.01 per unit of risk. If you would invest  32,535  in Northrop Grumman Corp on May 12, 2022 and sell it today you would earn a total of  14,751  from holding Northrop Grumman Corp or generate 45.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Northrop Grumman Corp  vs.  IQ Hedge Multi-Strategy

 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.

Northrop Price Channel

IQ Hedge Multi-Strategy 
IQ Hedge Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in IQ Hedge Multi-Strategy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IQ Hedge is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

IQ Hedge Price Channel

Northrop Grumman and IQ Hedge Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Northrop Grumman and IQ Hedge

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

IQ Hedge Multi-Strategy

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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 IQ Hedge 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. IQ Hedge'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, IQ Hedge'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 IQ Hedge Multi-Strategy.
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 Fund Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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