Correlation Between Northrop Grumman and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both Northrop Grumman and Nextera Energy 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 Nextera Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northrop Grumman and Nextera Energy Partners, you can compare the effects of market volatilities on Northrop Grumman and Nextera Energy 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 Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northrop Grumman and Nextera Energy.
Diversification Opportunities for Northrop Grumman and Nextera Energy
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Northrop and Nextera is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Northrop Grumman and Nextera Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy Partners 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy Partners has no effect on the direction of Northrop Grumman i.e., Northrop Grumman and Nextera Energy go up and down completely randomly.
Pair Corralation between Northrop Grumman and Nextera Energy
Considering the 90-day investment horizon Northrop Grumman is expected to generate 2.06 times less return on investment than Nextera Energy. But when comparing it to its historical volatility, Northrop Grumman is 2.15 times less risky than Nextera Energy. It trades about 0.1 of its potential returns per unit of risk. Nextera Energy Partners is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,541 in Nextera Energy Partners on July 19, 2024 and sell it today you would earn a total of 102.00 from holding Nextera Energy Partners or generate 4.01% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Northrop Grumman vs. Nextera Energy Partners
Performance |
Timeline |
Northrop Grumman |
Nextera Energy Partners |
Northrop Grumman and Nextera Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northrop Grumman and Nextera Energy
The main advantage of trading using opposite Northrop Grumman and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northrop Grumman position performs unexpectedly, Nextera Energy 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 Nextera Energy will offset losses from the drop in Nextera Energy's long position.Northrop Grumman vs. Raytheon Technologies Corp | Northrop Grumman vs. General Dynamics | Northrop Grumman vs. The Boeing | Northrop Grumman vs. L3Harris Technologies |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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