Correlation Between Northrop Grumman and CPI Aerostructures

Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and CPI Aerostructures 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 CPI Aerostructures into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northrop Grumman and CPI Aerostructures, you can compare the effects of market volatilities on Northrop Grumman and CPI Aerostructures 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 CPI Aerostructures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and CPI Aerostructures.

Diversification Opportunities for Northrop Grumman and CPI Aerostructures

-0.66

Correlation Coefficient

Northrop Grumman  CPI Aerostructures

Excellent diversification

The 3 months correlation between Northrop and CPI is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and CPI Aerostructures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPI Aerostructures 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 CPI Aerostructures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPI Aerostructures has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and CPI Aerostructures go up and down completely randomly.

Pair Corralation between Northrop Grumman and CPI Aerostructures

Considering the 90-day investment horizon Northrop Grumman is expected to generate 7.54 times less return on investment than CPI Aerostructures. But when comparing it to its historical volatility, Northrop Grumman is 3.49 times less risky than CPI Aerostructures. It trades about 0.01 of its potential returns per unit of risk. CPI Aerostructures is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  255.00  in CPI Aerostructures on January 26, 2024 and sell it today you would earn a total of  18.00  from holding CPI Aerostructures or generate 7.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.56%
Values	Daily Returns

Northrop Grumman  vs.  CPI Aerostructures

Northrop Grumman

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Northrop Grumman may actually be approaching a critical reversion point that can send shares even higher in May 2024.

CPI Aerostructures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CPI Aerostructures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPI Aerostructures is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Northrop Grumman and CPI Aerostructures

The main advantage of trading using opposite Northrop Grumman and CPI Aerostructures positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, CPI Aerostructures 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 CPI Aerostructures will offset losses from the drop in CPI Aerostructures' long position.

The idea behind Northrop Grumman and CPI Aerostructures 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.