Correlation Between KWESST Micro and Rocket Lab

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

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

Diversification Opportunities for KWESST Micro and Rocket Lab

-0.63

Correlation Coefficient

KWESST Micro  Rocket Lab

Excellent diversification

The 3 months correlation between KWESST and Rocket is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding KWESST Micro Systems 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 KWESST Micro 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 KWESST Micro Systems 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 KWESST Micro i.e., KWESST Micro and Rocket Lab go up and down completely randomly.

Pair Corralation between KWESST Micro and Rocket Lab

Considering the 90-day investment horizon KWESST Micro Systems is expected to under-perform the Rocket Lab. In addition to that, KWESST Micro is 2.77 times more volatile than Rocket Lab USA. It trades about -0.01 of its total potential returns per unit of risk. Rocket Lab USA is currently generating about 0.28 per unit of volatility. If you would invest  719.00  in Rocket Lab USA on August 18, 2024 and sell it today you would earn a total of  1,181  from holding Rocket Lab USA or generate 164.26% return on investment over 90 days.

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

KWESST Micro Systems  vs.  Rocket Lab USA

KWESST Micro Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KWESST Micro Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Rocket Lab USA

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Lab USA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Rocket Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KWESST Micro and Rocket Lab

The main advantage of trading using opposite KWESST Micro and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KWESST Micro 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 KWESST Micro Systems 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.