Correlation Between BAE Systems and MTU Aero

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

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

Diversification Opportunities for BAE Systems and MTU Aero

-0.13

Correlation Coefficient

BAE Systems  MTU Aero

Good diversification

The 3 months correlation between BAE and MTU is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and MTU Aero Engines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTU Aero Engines and BAE Systems 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 BAE Systems PLC are associated (or correlated) with MTU Aero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTU Aero Engines has no effect on the direction of BAE Systems i.e., BAE Systems and MTU Aero go up and down completely randomly.

Pair Corralation between BAE Systems and MTU Aero

Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the MTU Aero. In addition to that, BAE Systems is 1.07 times more volatile than MTU Aero Engines. It trades about -0.49 of its total potential returns per unit of risk. MTU Aero Engines is currently generating about -0.27 per unit of volatility. If you would invest  17,271  in MTU Aero Engines on October 5, 2024 and sell it today you would lose (930.00) from holding MTU Aero Engines or give up 5.38% of portfolio value over 90 days.

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

BAE Systems PLC  vs.  MTU Aero Engines

BAE Systems PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BAE Systems PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

MTU Aero Engines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTU Aero Engines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, MTU Aero is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BAE Systems and MTU Aero

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

The idea behind BAE Systems PLC and MTU Aero Engines 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.