Correlation Between Rocket Lab and VSE

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

Diversification Opportunities for Rocket Lab and VSE

0.26

Correlation Coefficient

Rocket Lab  VSE

Modest diversification

The 3 months correlation between Rocket and VSE is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Lab USA and VSE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VSE Corporation 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 VSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VSE Corporation has no effect on the direction of Rocket Lab i.e., Rocket Lab and VSE go up and down completely randomly.

Pair Corralation between Rocket Lab and VSE

Given the investment horizon of 90 days Rocket Lab USA is expected to generate 2.66 times more return on investment than VSE. However, Rocket Lab is 2.66 times more volatile than VSE Corporation. It trades about 0.18 of its potential returns per unit of risk. VSE Corporation is currently generating about -0.49 per unit of risk. 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	Very Weak
Accuracy	95.24%
Values	Daily Returns

Rocket Lab USA  vs.  VSE Corp.

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.

VSE Corporation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, VSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Rocket Lab and VSE

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

The idea behind Rocket Lab USA and VSE Corporation 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.