Correlation Between Rocket Lab and Rolls Royce

Can any of the company-specific risk be diversified away by investing in both Rocket Lab and Rolls Royce 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 Rolls Royce 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 Rolls Royce Holdings PLC, you can compare the effects of market volatilities on Rocket Lab and Rolls Royce 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 Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocket Lab and Rolls Royce.

Diversification Opportunities for Rocket Lab and Rolls Royce

-0.37

Correlation Coefficient

Rocket Lab  Rolls Royce

Very good diversification

The 3 months correlation between Rocket and Rolls is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Lab USA and Rolls Royce Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Rocket Lab i.e., Rocket Lab and Rolls Royce go up and down completely randomly.

Pair Corralation between Rocket Lab and Rolls Royce

Given the investment horizon of 90 days Rocket Lab USA is expected to under-perform the Rolls Royce. In addition to that, Rocket Lab is 2.43 times more volatile than Rolls Royce Holdings PLC. It trades about -0.04 of its total potential returns per unit of risk. Rolls Royce Holdings PLC is currently generating about 0.25 per unit of volatility. If you would invest  719.00  in Rolls Royce Holdings PLC on December 3, 2024 and sell it today you would earn a total of  229.00  from holding Rolls Royce Holdings PLC or generate 31.85% 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.  Rolls Royce Holdings PLC

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 somewhat strong essential indicators, Rocket Lab is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Rolls Royce Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rocket Lab and Rolls Royce

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

The idea behind Rocket Lab USA and Rolls Royce Holdings PLC 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.