Correlation Between Northrop Grumman and Lowes Companies

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

Diversification Opportunities for Northrop Grumman and Lowes Companies

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Northrop and Lowes is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies 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 Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Lowes Companies go up and down completely randomly.

Pair Corralation between Northrop Grumman and Lowes Companies

Considering the 90-day investment horizon Northrop Grumman is expected to generate 1.83 times less return on investment than Lowes Companies. But when comparing it to its historical volatility, Northrop Grumman is 1.88 times less risky than Lowes Companies. It trades about 0.27 of its potential returns per unit of risk. Lowes Companies is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  23,539  in Lowes Companies on December 29, 2023 and sell it today you would earn a total of  1,794  from holding Lowes Companies or generate 7.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Northrop Grumman  vs.  Lowes Companies

 Performance 
       Timeline  
Northrop Grumman 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Lowes Companies 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Lowes Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Northrop Grumman and Lowes Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Northrop Grumman and Lowes Companies

The main advantage of trading using opposite Northrop Grumman and Lowes Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, Lowes Companies 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 Lowes Companies will offset losses from the drop in Lowes Companies' long position.
The idea behind Northrop Grumman and Lowes Companies 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 the Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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