Correlation Between Rheinmetall and MTU Aero

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

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

Diversification Opportunities for Rheinmetall and MTU Aero

0.73

Correlation Coefficient

Rheinmetall  MTU Aero

Poor diversification

The 3 months correlation between Rheinmetall and MTU is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG ADR 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 Rheinmetall 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 Rheinmetall AG ADR 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 Rheinmetall i.e., Rheinmetall and MTU Aero go up and down completely randomly.

Pair Corralation between Rheinmetall and MTU Aero

Assuming the 90 days horizon Rheinmetall AG ADR is expected to generate 1.6 times more return on investment than MTU Aero. However, Rheinmetall is 1.6 times more volatile than MTU Aero Engines. It trades about 0.34 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  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

Rheinmetall AG ADR  vs.  MTU Aero Engines

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.

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.

Pair Trading with Rheinmetall and MTU Aero

The main advantage of trading using opposite Rheinmetall and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rheinmetall 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 Rheinmetall AG ADR 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.