Correlation Between MTU Aero and Safran SA

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

Diversification Opportunities for MTU Aero and Safran SA

-0.15

Correlation Coefficient

MTU Aero  Safran SA

Good diversification

The 3 months correlation between MTU and Safran is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding MTU Aero Engines and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran SA 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 Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of MTU Aero i.e., MTU Aero and Safran SA go up and down completely randomly.

Pair Corralation between MTU Aero and Safran SA

Assuming the 90 days horizon MTU Aero Engines is expected to generate 0.66 times more return on investment than Safran SA. However, MTU Aero Engines is 1.51 times less risky than Safran SA. It trades about 0.17 of its potential returns per unit of risk. Safran SA is currently generating about 0.02 per unit of risk. If you would invest  12,712  in MTU Aero Engines on September 29, 2024 and sell it today you would earn a total of  4,069  from holding MTU Aero Engines or generate 32.01% return on investment over 90 days.

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

MTU Aero Engines  vs.  Safran SA

MTU Aero Engines

Risk-Adjusted Performance

7 of 100

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Safran SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Safran SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Safran SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MTU Aero and Safran SA

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

The idea behind MTU Aero Engines and Safran SA 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 Stocks Directory module to find actively traded stocks across global markets.