Correlation Between Rocket Lab and Mercury Systems

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

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

Diversification Opportunities for Rocket Lab and Mercury Systems

-0.24

Correlation Coefficient

Rocket Lab  Mercury Systems

Very good diversification

The 3 months correlation between Rocket and Mercury is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Lab USA and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Rocket Lab 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 Rocket Lab USA are associated (or correlated) with Mercury Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercury Systems has no effect on the direction of Rocket Lab i.e., Rocket Lab and Mercury Systems go up and down completely randomly.

Pair Corralation between Rocket Lab and Mercury Systems

Given the investment horizon of 90 days Rocket Lab USA is expected to under-perform the Mercury Systems. In addition to that, Rocket Lab is 1.95 times more volatile than Mercury Systems. It trades about -0.06 of its total potential returns per unit of risk. Mercury Systems is currently generating about 0.03 per unit of volatility. If you would invest  4,200  in Mercury Systems on December 29, 2024 and sell it today you would earn a total of  160.00  from holding Mercury Systems or generate 3.81% return on investment over 90 days.

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

Rocket Lab USA  vs.  Mercury Systems

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.

Mercury Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Mercury Systems may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rocket Lab and Mercury Systems

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

The idea behind Rocket Lab USA and Mercury Systems 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.