Correlation Between Ammo and Rocket Lab

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

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

Diversification Opportunities for Ammo and Rocket Lab

0.13

Correlation Coefficient

Ammo  Rocket Lab

Average diversification

The 3 months correlation between Ammo and Rocket is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Ammo Inc 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 Ammo 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 Ammo Inc 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 Ammo i.e., Ammo and Rocket Lab go up and down completely randomly.

Pair Corralation between Ammo and Rocket Lab

Given the investment horizon of 90 days Ammo Inc is expected to generate 0.51 times more return on investment than Rocket Lab. However, Ammo Inc is 1.94 times less risky than Rocket Lab. It trades about 0.65 of its potential returns per unit of risk. Rocket Lab USA is currently generating about 0.1 per unit of risk. If you would invest  98.00  in Ammo Inc on October 25, 2024 and sell it today you would earn a total of  65.00  from holding Ammo Inc or generate 66.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Ammo Inc  vs.  Rocket Lab USA

Ammo Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ammo Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Ammo showed solid returns over the last few months and may actually be approaching a breakup point.

Rocket Lab USA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Lab USA are ranked lower than 20 (%) 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 Ammo and Rocket Lab

The main advantage of trading using opposite Ammo and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ammo 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 Ammo Inc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.