Correlation Between BWX Technologies and MTU Aero

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

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

Diversification Opportunities for BWX Technologies and MTU Aero

-0.36

Correlation Coefficient

BWX Technologies  MTU Aero

Very good diversification

The 3 months correlation between BWX and MTU is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding BWX Technologies 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 BWX Technologies 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 BWX Technologies 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 BWX Technologies i.e., BWX Technologies and MTU Aero go up and down completely randomly.

Pair Corralation between BWX Technologies and MTU Aero

Given the investment horizon of 90 days BWX Technologies is expected to under-perform the MTU Aero. But the stock apears to be less risky and, when comparing its historical volatility, BWX Technologies is 1.43 times less risky than MTU Aero. The stock trades about -0.04 of its potential returns per unit of risk. The MTU Aero Engines is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  33,825  in MTU Aero Engines on December 26, 2024 and sell it today you would earn a total of  2,374  from holding MTU Aero Engines or generate 7.02% return on investment over 90 days.

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

BWX Technologies  vs.  MTU Aero Engines

BWX Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days BWX Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BWX Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

MTU Aero Engines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MTU Aero Engines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, MTU Aero may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BWX Technologies and MTU Aero

The main advantage of trading using opposite BWX Technologies and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BWX Technologies 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 BWX Technologies 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.