Correlation Between Northrop Grumman and American Express
Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and American Express 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 American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman and American Express, you can compare the effects of market volatilities on Northrop Grumman and American Express 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 American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and American Express.
Diversification Opportunities for Northrop Grumman and American Express
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Northrop and American is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and American Express go up and down completely randomly.
Pair Corralation between Northrop Grumman and American Express
Considering the 90-day investment horizon Northrop Grumman is expected to generate 6.31 times less return on investment than American Express. But when comparing it to its historical volatility, Northrop Grumman is 1.65 times less risky than American Express. It trades about 0.05 of its potential returns per unit of risk. American Express is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 22,377 in American Express on January 26, 2024 and sell it today you would earn a total of 1,535 from holding American Express or generate 6.86% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Northrop Grumman vs. American Express
Performance |
Timeline |
Northrop Grumman |
American Express |
Northrop Grumman and American Express Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northrop Grumman and American Express
The main advantage of trading using opposite Northrop Grumman and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.Northrop Grumman vs. Lockheed Martin | Northrop Grumman vs. General Dynamics | Northrop Grumman vs. Raytheon Technologies Corp | Northrop Grumman vs. Huntington Ingalls Industries |
American Express vs. Visa Class A | American Express vs. PayPal Holdings | American Express vs. Capital One Financial | American Express vs. Upstart HoldingsInc |
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 the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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