Correlation Between MTU Aero and AAR Corp
Can any of the company-specific risk be diversified away by investing in both MTU Aero and AAR Corp 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 AAR Corp 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 AAR Corp, you can compare the effects of market volatilities on MTU Aero and AAR Corp 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 AAR Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTU Aero and AAR Corp.
Diversification Opportunities for MTU Aero and AAR Corp
Very good diversification
The 3 months correlation between MTU and AAR is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding MTU Aero Engines and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp 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 AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of MTU Aero i.e., MTU Aero and AAR Corp go up and down completely randomly.
Pair Corralation between MTU Aero and AAR Corp
Assuming the 90 days horizon MTU Aero Engines is expected to generate 1.35 times more return on investment than AAR Corp. However, MTU Aero is 1.35 times more volatile than AAR Corp. It trades about 0.05 of its potential returns per unit of risk. AAR Corp is currently generating about 0.05 per unit of risk. If you would invest 20,270 in MTU Aero Engines on August 28, 2024 and sell it today you would earn a total of 12,644 from holding MTU Aero Engines or generate 62.38% 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. AAR Corp
Performance |
| Timeline |
| MTU Aero Engines |
| AAR Corp |
MTU Aero and AAR Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MTU Aero and AAR Corp
The main advantage of trading using opposite MTU Aero and AAR Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTU Aero position performs unexpectedly, AAR Corp 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 AAR Corp will offset losses from the drop in AAR Corp's long position.The idea behind MTU Aero Engines and AAR Corp 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.Check out your portfolio center.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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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