Correlation Between MTU Aero and Rolls-Royce Holdings
Can any of the company-specific risk be diversified away by investing in both MTU Aero and Rolls-Royce Holdings 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 Rolls-Royce Holdings 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 Rolls Royce Holdings PLC, you can compare the effects of market volatilities on MTU Aero and Rolls-Royce Holdings 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 Rolls-Royce Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTU Aero and Rolls-Royce Holdings.
Diversification Opportunities for MTU Aero and Rolls-Royce Holdings
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between MTU and Rolls-Royce is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MTU Aero Engines and Rolls Royce Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls-Royce Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of MTU Aero i.e., MTU Aero and Rolls-Royce Holdings go up and down completely randomly.
Pair Corralation between MTU Aero and Rolls-Royce Holdings
Assuming the 90 days horizon MTU Aero is expected to generate 3.74 times less return on investment than Rolls-Royce Holdings. But when comparing it to its historical volatility, MTU Aero Engines is 1.51 times less risky than Rolls-Royce Holdings. It trades about 0.07 of its potential returns per unit of risk. Rolls Royce Holdings PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 110.00 in Rolls Royce Holdings PLC on September 5, 2024 and sell it today you would earn a total of 612.00 from holding Rolls Royce Holdings PLC or generate 556.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
MTU Aero Engines vs. Rolls Royce Holdings PLC
Performance |
| Timeline |
| MTU Aero Engines |
| Rolls Royce Holdings |
MTU Aero and Rolls-Royce Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MTU Aero and Rolls-Royce Holdings
The main advantage of trading using opposite MTU Aero and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTU Aero position performs unexpectedly, Rolls-Royce Holdings 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 Rolls-Royce Holdings will offset losses from the drop in Rolls-Royce Holdings' long position.| MTU Aero vs. Rolls Royce Holdings PLC | MTU Aero vs. VirTra Inc | MTU Aero vs. BWX Technologies | MTU Aero vs. Embraer SA ADR |
| Rolls-Royce Holdings vs. Rolls Royce Holdings plc | Rolls-Royce Holdings vs. VirTra Inc | Rolls-Royce Holdings vs. BWX Technologies | Rolls-Royce Holdings vs. Embraer SA ADR |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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