Correlation Between Hannover and MTU Aero

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

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

Diversification Opportunities for Hannover and MTU Aero

0.78

Correlation Coefficient

Hannover  MTU Aero

Poor diversification

The 3 months correlation between Hannover and MTU is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hannover Re 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 Hannover 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 Hannover Re 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 Hannover i.e., Hannover and MTU Aero go up and down completely randomly.

Pair Corralation between Hannover and MTU Aero

Assuming the 90 days horizon Hannover Re is expected to generate 0.58 times more return on investment than MTU Aero. However, Hannover Re is 1.71 times less risky than MTU Aero. It trades about 0.17 of its potential returns per unit of risk. MTU Aero Engines is currently generating about 0.09 per unit of risk. If you would invest  4,245  in Hannover Re on December 21, 2024 and sell it today you would earn a total of  669.00  from holding Hannover Re or generate 15.76% return on investment over 90 days.

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

Hannover Re  vs.  MTU Aero Engines

Hannover Re

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hannover Re are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Hannover showed solid returns over the last few months and may actually be approaching a breakup point.

MTU Aero Engines

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MTU Aero Engines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, MTU Aero showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hannover and MTU Aero

The main advantage of trading using opposite Hannover and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hannover 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 Hannover Re 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 Commodity Directory module to find actively traded commodities issued by global exchanges.