Correlation Between Thales SA and MTU Aero

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

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

Diversification Opportunities for Thales SA and MTU Aero

-0.34

Correlation Coefficient

Thales SA  MTU Aero

Very good diversification

The 3 months correlation between Thales and MTU is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Thales SA 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 Thales SA 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 Thales SA 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 Thales SA i.e., Thales SA and MTU Aero go up and down completely randomly.

Pair Corralation between Thales SA and MTU Aero

Assuming the 90 days horizon Thales SA is expected to under-perform the MTU Aero. In addition to that, Thales SA is 1.04 times more volatile than MTU Aero Engines. It trades about -0.06 of its total potential returns per unit of risk. MTU Aero Engines is currently generating about 0.17 per unit of volatility. 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

Thales SA  vs.  MTU Aero Engines

Thales SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with Thales SA and MTU Aero

The main advantage of trading using opposite Thales SA and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thales SA 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 Thales SA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.