Correlation Between Rocket Lab and Safran SA

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

Diversification Opportunities for Rocket Lab and Safran SA

-0.44

Correlation Coefficient

Rocket Lab  Safran SA

Very good diversification

The 3 months correlation between Rocket and Safran is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Lab USA and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran SA 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 Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of Rocket Lab i.e., Rocket Lab and Safran SA go up and down completely randomly.

Pair Corralation between Rocket Lab and Safran SA

Given the investment horizon of 90 days Rocket Lab USA is expected to under-perform the Safran SA. In addition to that, Rocket Lab is 2.9 times more volatile than Safran SA. It trades about -0.02 of its total potential returns per unit of risk. Safran SA is currently generating about 0.04 per unit of volatility. If you would invest  5,673  in Safran SA on January 13, 2025 and sell it today you would earn a total of  230.00  from holding Safran SA or generate 4.05% return on investment over 90 days.

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

Rocket Lab USA  vs.  Safran SA

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.

Safran SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Safran SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Safran SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rocket Lab and Safran SA

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

The idea behind Rocket Lab USA and Safran SA 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.