Correlation Between HEICO and MTU Aero

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

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

Diversification Opportunities for HEICO and MTU Aero

0.7

Correlation Coefficient

HEICO  MTU Aero

Poor diversification

The 3 months correlation between HEICO and MTU is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding HEICO 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 HEICO 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 HEICO 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 HEICO i.e., HEICO and MTU Aero go up and down completely randomly.

Pair Corralation between HEICO and MTU Aero

Assuming the 90 days horizon HEICO is expected to generate 0.6 times more return on investment than MTU Aero. However, HEICO is 1.66 times less risky than MTU Aero. It trades about 0.1 of its potential returns per unit of risk. MTU Aero Engines is currently generating about 0.05 per unit of risk. If you would invest  18,811  in HEICO on December 27, 2024 and sell it today you would earn a total of  2,398  from holding HEICO or generate 12.75% return on investment over 90 days.

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

HEICO  vs.  MTU Aero Engines

HEICO

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HEICO are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, HEICO sustained solid returns over the last few months and may actually be approaching a breakup point.

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 HEICO and MTU Aero

The main advantage of trading using opposite HEICO and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HEICO 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 HEICO 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.