Correlation Between Rotork Plc and MTU Aero

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

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

Diversification Opportunities for Rotork Plc and MTU Aero

0.13

Correlation Coefficient

Rotork Plc  MTU Aero

Average diversification

The 3 months correlation between Rotork and MTU is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Rotork plc 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 Rotork Plc 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 Rotork plc 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 Rotork Plc i.e., Rotork Plc and MTU Aero go up and down completely randomly.

Pair Corralation between Rotork Plc and MTU Aero

Assuming the 90 days horizon Rotork plc is expected to generate 3.12 times more return on investment than MTU Aero. However, Rotork Plc is 3.12 times more volatile than MTU Aero Engines. It trades about 0.05 of its potential returns per unit of risk. MTU Aero Engines is currently generating about 0.13 per unit of risk. If you would invest  396.00  in Rotork plc on October 24, 2024 and sell it today you would earn a total of  9.00  from holding Rotork plc or generate 2.27% return on investment over 90 days.

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

Rotork plc  vs.  MTU Aero Engines

Rotork plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rotork plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Rotork Plc may actually be approaching a critical reversion point that can send shares even higher in February 2025.

MTU Aero Engines

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Rotork Plc and MTU Aero

The main advantage of trading using opposite Rotork Plc and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rotork Plc 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 Rotork plc 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.