Correlation Between MTU Aero and Thales SA

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

By analyzing existing cross correlation between MTU Aero Engines and Thales SA, you can compare the effects of market volatilities on MTU Aero and Thales 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 MTU Aero with a short position of Thales SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTU Aero and Thales SA.

Diversification Opportunities for MTU Aero and Thales SA

-0.14

Correlation Coefficient

MTU Aero  Thales SA

Good diversification

The 3 months correlation between MTU and Thales is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding MTU Aero Engines and Thales SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thales SA and MTU Aero 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 MTU Aero Engines are associated (or correlated) with Thales SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thales SA has no effect on the direction of MTU Aero i.e., MTU Aero and Thales SA go up and down completely randomly.

Pair Corralation between MTU Aero and Thales SA

Assuming the 90 days horizon MTU Aero Engines is expected to generate 0.95 times more return on investment than Thales SA. However, MTU Aero Engines is 1.06 times less risky than Thales SA. It trades about 0.16 of its potential returns per unit of risk. Thales SA is currently generating about -0.07 per unit of risk. If you would invest  14,738  in MTU Aero Engines on September 5, 2024 and sell it today you would earn a total of  2,093  from holding MTU Aero Engines or generate 14.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

MTU Aero Engines  vs.  Thales SA

MTU Aero Engines

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTU Aero Engines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, MTU Aero showed solid returns over the last few months and may actually be approaching a breakup point.

Thales SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MTU Aero and Thales SA

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

The idea behind MTU Aero Engines and Thales 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.