Correlation Between Rocket Lab and Northrop Grumman

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

Diversification Opportunities for Rocket Lab and Northrop Grumman

-0.84

Correlation Coefficient

Rocket Lab  Northrop Grumman

Pay attention - limited upside

The 3 months correlation between Rocket and Northrop is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Lab USA and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman 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 Northrop Grumman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrop Grumman has no effect on the direction of Rocket Lab i.e., Rocket Lab and Northrop Grumman go up and down completely randomly.

Pair Corralation between Rocket Lab and Northrop Grumman

Given the investment horizon of 90 days Rocket Lab USA is expected to generate 6.65 times more return on investment than Northrop Grumman. However, Rocket Lab is 6.65 times more volatile than Northrop Grumman. It trades about 0.29 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.39 per unit of risk. If you would invest  1,478  in Rocket Lab USA on September 12, 2024 and sell it today you would earn a total of  807.00  from holding Rocket Lab USA or generate 54.6% return on investment over 90 days.

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

Rocket Lab USA  vs.  Northrop Grumman

Rocket Lab USA

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Lab USA are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, Rocket Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Northrop Grumman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northrop Grumman has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Rocket Lab and Northrop Grumman

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

The idea behind Rocket Lab USA and Northrop Grumman 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.