Correlation Between Visa and Rocket Lab

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

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

Diversification Opportunities for Visa and Rocket Lab

0.77

Correlation Coefficient

Visa  Rocket Lab

Poor diversification

The 3 months correlation between Visa and Rocket is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and Rocket Lab go up and down completely randomly.

Pair Corralation between Visa and Rocket Lab

Taking into account the 90-day investment horizon Visa is expected to generate 9.32 times less return on investment than Rocket Lab. But when comparing it to its historical volatility, Visa Class A is 5.55 times less risky than Rocket Lab. It trades about 0.23 of its potential returns per unit of risk. Rocket Lab USA is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  1,068  in Rocket Lab USA on August 18, 2024 and sell it today you would earn a total of  832.00  from holding Rocket Lab USA or generate 77.9% return on investment over 90 days.

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

Visa Class A  vs.  Rocket Lab USA

Visa Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

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 Visa and Rocket Lab

The main advantage of trading using opposite Visa and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.