Correlation Between Northrop Grumman and Walmart

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

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

Diversification Opportunities for Northrop Grumman and Walmart

0.5

Correlation Coefficient

Northrop Grumman  Walmart

Very weak diversification

The 3 months correlation between Northrop and Walmart is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Walmart go up and down completely randomly.

Pair Corralation between Northrop Grumman and Walmart

Considering the 90-day investment horizon Northrop Grumman is expected to generate 2.05 times less return on investment than Walmart. In addition to that, Northrop Grumman is 1.17 times more volatile than Walmart. It trades about 0.01 of its total potential returns per unit of risk. Walmart is currently generating about 0.03 per unit of volatility. If you would invest  4,957  in Walmart on January 25, 2024 and sell it today you would earn a total of  952.00  from holding Walmart or generate 19.21% 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.  Walmart

Northrop Grumman

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Northrop Grumman may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Walmart

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Walmart may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Northrop Grumman and Walmart

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

The idea behind Northrop Grumman and Walmart 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 Global Correlations module to find global opportunities by holding instruments from different markets.