Correlation Between NOV and Northrop Grumman

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

Diversification Opportunities for NOV and Northrop Grumman

0.33
  Correlation Coefficient

Weak diversification

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

Pair Corralation between NOV and Northrop Grumman

Considering the 90-day investment horizon NOV Inc is expected to generate 2.26 times more return on investment than Northrop Grumman. However, NOV is 2.26 times more volatile than Northrop Grumman Corp. It trades about 0.05 of its potential returns per unit of risk. Northrop Grumman Corp is currently generating about 0.07 per unit of risk. If you would invest  971.00  in NOV Inc on May 20, 2022 and sell it today you would earn a total of  815.00  from holding NOV Inc or generate 83.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

NOV Inc  vs.  Northrop Grumman Corp

 Performance (%) 
       Timeline  
NOV Inc 
NOV Performance
0 of 100
Over the last 90 days NOV Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, NOV is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

NOV Price Channel

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

NOV and Northrop Grumman Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NOV and Northrop Grumman

The main advantage of trading using opposite NOV and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NOV position performs unexpectedly, Northrop Grumman 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 Northrop Grumman will offset losses from the drop in Northrop Grumman's long position.
The idea behind NOV Inc and Northrop Grumman 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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