Correlation Between VSE and Rocket Lab

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

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

Diversification Opportunities for VSE and Rocket Lab

0.29

Correlation Coefficient

VSE  Rocket Lab

Modest diversification

The 3 months correlation between VSE and Rocket is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. 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 VSE 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 VSE Corporation 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 VSE i.e., VSE and Rocket Lab go up and down completely randomly.

Pair Corralation between VSE and Rocket Lab

Given the investment horizon of 90 days VSE Corporation is expected to under-perform the Rocket Lab. But the stock apears to be less risky and, when comparing its historical volatility, VSE Corporation is 2.71 times less risky than Rocket Lab. The stock trades about -0.48 of its potential returns per unit of risk. The 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

VSE Corp.  vs.  Rocket Lab USA

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.

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 VSE and Rocket Lab

The main advantage of trading using opposite VSE and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VSE 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 VSE Corporation 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.