Correlation Between Kratos Defense and Rocket Lab

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

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

Diversification Opportunities for Kratos Defense and Rocket Lab

0.48

Correlation Coefficient

Kratos Defense  Rocket Lab

Very weak diversification

The 3 months correlation between Kratos and Rocket is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Kratos Defense Security 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 Kratos Defense 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 Kratos Defense Security 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 Kratos Defense i.e., Kratos Defense and Rocket Lab go up and down completely randomly.

Pair Corralation between Kratos Defense and Rocket Lab

Given the investment horizon of 90 days Kratos Defense is expected to generate 3.73 times less return on investment than Rocket Lab. But when comparing it to its historical volatility, Kratos Defense Security is 1.92 times less risky than Rocket Lab. It trades about 0.09 of its potential returns per unit of risk. Rocket Lab USA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,324  in Rocket Lab USA on October 10, 2024 and sell it today you would earn a total of  471.00  from holding Rocket Lab USA or generate 20.27% return on investment over 90 days.

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

Kratos Defense Security  vs.  Rocket Lab USA

Kratos Defense Security

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Kratos Defense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rocket Lab USA

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Lab USA are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal essential indicators, Rocket Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kratos Defense and Rocket Lab

The main advantage of trading using opposite Kratos Defense and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kratos Defense 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 Kratos Defense Security 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.