Correlation Between American Axle and Li Auto

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

By analyzing existing cross correlation between American Axle Manufacturing and Li Auto, you can compare the effects of market volatilities on American Axle and Li Auto 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 American Axle with a short position of Li Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Axle and Li Auto.

Diversification Opportunities for American Axle and Li Auto

-0.29

Correlation Coefficient

American Axle  Li Auto

Very good diversification

The 3 months correlation between American and Li Auto is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and American Axle 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 American Axle Manufacturing are associated (or correlated) with Li Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Auto has no effect on the direction of American Axle i.e., American Axle and Li Auto go up and down completely randomly.

Pair Corralation between American Axle and Li Auto

Considering the 90-day investment horizon American Axle Manufacturing is expected to generate 0.79 times more return on investment than Li Auto. However, American Axle Manufacturing is 1.27 times less risky than Li Auto. It trades about 0.03 of its potential returns per unit of risk. Li Auto is currently generating about -0.07 per unit of risk. If you would invest  619.00  in American Axle Manufacturing on September 18, 2024 and sell it today you would earn a total of  7.00  from holding American Axle Manufacturing or generate 1.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

American Axle Manufacturing  vs.  Li Auto

American Axle Manufa

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, American Axle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Li Auto

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Li Auto may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Axle and Li Auto

The main advantage of trading using opposite American Axle and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Axle position performs unexpectedly, Li Auto 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 Li Auto will offset losses from the drop in Li Auto's long position.

The idea behind American Axle Manufacturing and Li Auto 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 CEOs Directory module to screen CEOs from public companies around the world.