Correlation Between SIFCO Industries and Northrop Grumman

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

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

Diversification Opportunities for SIFCO Industries and Northrop Grumman

0.82

Correlation Coefficient

SIFCO Industries  Northrop Grumman

Very poor diversification

The 3 months correlation between SIFCO and Northrop is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding SIFCO Industries and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and SIFCO Industries 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 SIFCO Industries 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 has no effect on the direction of SIFCO Industries i.e., SIFCO Industries and Northrop Grumman go up and down completely randomly.

Pair Corralation between SIFCO Industries and Northrop Grumman

Considering the 90-day investment horizon SIFCO Industries is expected to generate 2.79 times more return on investment than Northrop Grumman. However, SIFCO Industries is 2.79 times more volatile than Northrop Grumman. It trades about 0.04 of its potential returns per unit of risk. Northrop Grumman is currently generating about 0.02 per unit of risk. If you would invest  311.00  in SIFCO Industries on June 22, 2024 and sell it today you would earn a total of  166.00  from holding SIFCO Industries or generate 53.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.39%
Values	Daily Returns

SIFCO Industries  vs.  Northrop Grumman

SIFCO Industries

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIFCO Industries are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward indicators, SIFCO Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Northrop Grumman

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Northrop Grumman exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIFCO Industries and Northrop Grumman

The main advantage of trading using opposite SIFCO Industries and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIFCO Industries 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.

The idea behind SIFCO Industries and Northrop Grumman 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.