Correlation Between Transocean and Northrop Grumman

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

Diversification Opportunities for Transocean and Northrop Grumman

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Transocean and Northrop is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Transocean 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 Transocean 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 Transocean 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 Transocean i.e., Transocean and Northrop Grumman go up and down completely randomly.

Pair Corralation between Transocean and Northrop Grumman

Considering the 90-day investment horizon Transocean is expected to under-perform the Northrop Grumman. In addition to that, Transocean is 3.1 times more volatile than Northrop Grumman Corp. It trades about -0.27 of its total potential returns per unit of risk. Northrop Grumman Corp is currently generating about -0.05 per unit of volatility. If you would invest  48,032  in Northrop Grumman Corp on July 3, 2022 and sell it today you would lose (1,000.00)  from holding Northrop Grumman Corp or give up 2.08% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Transocean  vs.  Northrop Grumman Corp

 Performance (%) 
       Timeline  
Transocean 
Transocean Performance
0 of 100
Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in November 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Transocean Price Channel

Northrop Grumman Corp 
Northrop Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman Corp are ranked lower than 1 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Northrop Price Channel

Transocean and Northrop Grumman Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Transocean and Northrop Grumman

The main advantage of trading using opposite Transocean and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transocean 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.
Transocean vs. Amazon Inc
The idea behind Transocean 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.
Northrop Grumman vs. Amazon Inc
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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