Correlation Between BWX Technologies and Rocket Lab

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

By analyzing existing cross correlation between BWX Technologies and Rocket Lab USA, you can compare the effects of market volatilities on BWX Technologies and Rocket Lab 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 BWX Technologies with a short position of Rocket Lab. Check out your portfolio center. Please also check ongoing floating volatility patterns of BWX Technologies and Rocket Lab.

Diversification Opportunities for BWX Technologies and Rocket Lab

0.8

Correlation Coefficient

BWX Technologies  Rocket Lab

Very poor diversification

The 3 months correlation between BWX and Rocket is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BWX Technologies and Rocket Lab USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocket Lab USA and BWX Technologies 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 BWX Technologies are associated (or correlated) with Rocket Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocket Lab USA has no effect on the direction of BWX Technologies i.e., BWX Technologies and Rocket Lab go up and down completely randomly.

Pair Corralation between BWX Technologies and Rocket Lab

Given the investment horizon of 90 days BWX Technologies is expected to generate 0.39 times more return on investment than Rocket Lab. However, BWX Technologies is 2.56 times less risky than Rocket Lab. It trades about -0.03 of its potential returns per unit of risk. Rocket Lab USA is currently generating about -0.05 per unit of risk. If you would invest  11,223  in BWX Technologies on December 27, 2024 and sell it today you would lose (749.00) from holding BWX Technologies or give up 6.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

BWX Technologies  vs.  Rocket Lab USA

BWX Technologies

Risk-Adjusted Performance

Very Weak

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

Rocket Lab USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rocket Lab USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BWX Technologies and Rocket Lab

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

The idea behind BWX Technologies and Rocket Lab USA 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.