Correlation Between Axon Enterprise and Rocket Lab

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

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

Diversification Opportunities for Axon Enterprise and Rocket Lab

0.78

Correlation Coefficient

Axon Enterprise  Rocket Lab

Poor diversification

The 3 months correlation between Axon and Rocket is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Axon Enterprise 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 Axon Enterprise 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 Axon Enterprise 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 Axon Enterprise i.e., Axon Enterprise and Rocket Lab go up and down completely randomly.

Pair Corralation between Axon Enterprise and Rocket Lab

Given the investment horizon of 90 days Axon Enterprise is expected to generate 0.78 times more return on investment than Rocket Lab. However, Axon Enterprise is 1.29 times less risky than Rocket Lab. It trades about 0.01 of its potential returns per unit of risk. Rocket Lab USA is currently generating about -0.03 per unit of risk. If you would invest  65,811  in Axon Enterprise on February 3, 2025 and sell it today you would lose (2,995) from holding Axon Enterprise or give up 4.55% of portfolio value over 90 days.

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

Axon Enterprise  vs.  Rocket Lab USA

Axon Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axon Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Axon Enterprise is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 latest abnormal performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Axon Enterprise and Rocket Lab

The main advantage of trading using opposite Axon Enterprise and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axon Enterprise 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 Axon Enterprise 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.