Correlation Between Rolls Royce and Rocket Lab
Can any of the company-specific risk be diversified away by investing in both Rolls Royce 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 Rolls Royce and Rocket Lab into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rolls Royce Holdings PLC and Rocket Lab USA, you can compare the effects of market volatilities on Rolls Royce 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 Rolls Royce with a short position of Rocket Lab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and Rocket Lab.
Diversification Opportunities for Rolls Royce and Rocket Lab
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Rolls and Rocket is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC 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 Rolls Royce 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 Rolls Royce Holdings PLC 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 Rolls Royce i.e., Rolls Royce and Rocket Lab go up and down completely randomly.
Pair Corralation between Rolls Royce and Rocket Lab
Assuming the 90 days horizon Rolls Royce Holdings PLC is expected to under-perform the Rocket Lab. But the pink sheet apears to be less risky and, when comparing its historical volatility, Rolls Royce Holdings PLC is 3.36 times less risky than Rocket Lab. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Rocket Lab USA is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 1,126 in Rocket Lab USA on August 29, 2024 and sell it today you would earn a total of 1,418 from holding Rocket Lab USA or generate 125.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Rolls Royce Holdings PLC vs. Rocket Lab USA
Performance |
| Timeline |
| Rolls Royce Holdings |
| Rocket Lab USA |
Rolls Royce and Rocket Lab Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rolls Royce and Rocket Lab
The main advantage of trading using opposite Rolls Royce and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce 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.| Rolls Royce vs. Rolls Royce Holdings plc | Rolls Royce vs. VirTra Inc | Rolls Royce vs. BWX Technologies | Rolls Royce vs. Embraer SA ADR |
| Rocket Lab vs. Redwire Corp | Rocket Lab vs. Momentus | Rocket Lab vs. Planet Labs PBC | Rocket Lab vs. Virgin Galactic Holdings |
Check out your portfolio center.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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