Correlation Between MTU Aero and Rheinmetall

Can any of the company-specific risk be diversified away by investing in both MTU Aero and Rheinmetall 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 Rheinmetall 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 Rheinmetall AG ADR, you can compare the effects of market volatilities on MTU Aero and Rheinmetall 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 Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTU Aero and Rheinmetall.

Diversification Opportunities for MTU Aero and Rheinmetall

0.73

Correlation Coefficient

MTU Aero  Rheinmetall

Poor diversification

The 3 months correlation between MTU and Rheinmetall is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MTU Aero Engines and Rheinmetall AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG ADR 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG ADR has no effect on the direction of MTU Aero i.e., MTU Aero and Rheinmetall go up and down completely randomly.

Pair Corralation between MTU Aero and Rheinmetall

Assuming the 90 days horizon MTU Aero is expected to generate 10.79 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, MTU Aero Engines is 1.6 times less risky than Rheinmetall. It trades about 0.05 of its potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  12,759  in Rheinmetall AG ADR on December 30, 2024 and sell it today you would earn a total of  15,489  from holding Rheinmetall AG ADR or generate 121.4% return on investment over 90 days.

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

MTU Aero Engines  vs.  Rheinmetall AG ADR

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. In spite of fairly weak basic indicators, MTU Aero may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Rheinmetall AG ADR

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Rheinmetall showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTU Aero and Rheinmetall

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

The idea behind MTU Aero Engines and Rheinmetall AG ADR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.