Correlation Between Amazon and Rocket Lab

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Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and Rocket Lab into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Rocket Lab USA, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of Rocket Lab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Rocket Lab.

Diversification Opportunities for Amazon and Rocket Lab

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between Amazon and Rocket is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc 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 Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Rocket Lab go up and down completely randomly.

Pair Corralation between Amazon and Rocket Lab

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Rocket Lab. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.97 times less risky than Rocket Lab. The stock trades about -0.03 of its potential returns per unit of risk. The Rocket Lab USA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,030  in Rocket Lab USA on September 4, 2022 and sell it today you would lose (605.00)  from holding Rocket Lab USA or give up 58.74% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.8%
ValuesDaily Returns

Amazon Inc  vs.  Rocket Lab USA

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

Rocket Lab USA 
Rocket Performance
0 of 100
Over the last 90 days Rocket Lab USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

Rocket Price Channel

Amazon and Rocket Lab Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Rocket Lab

The main advantage of trading using opposite Amazon and Rocket Lab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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.
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The idea behind Amazon Inc 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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Check out your portfolio center. 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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