Correlation Between Carbon Revolution and Li Auto

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

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

Diversification Opportunities for Carbon Revolution and Li Auto

0.24

Correlation Coefficient

Carbon Revolution  Li Auto

Modest diversification

The 3 months correlation between Carbon and Li Auto is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Carbon Revolution Public and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Carbon Revolution 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 Carbon Revolution Public 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 Carbon Revolution i.e., Carbon Revolution and Li Auto go up and down completely randomly.

Pair Corralation between Carbon Revolution and Li Auto

Assuming the 90 days horizon Carbon Revolution Public is expected to generate 4.96 times more return on investment than Li Auto. However, Carbon Revolution is 4.96 times more volatile than Li Auto. It trades about 0.06 of its potential returns per unit of risk. Li Auto is currently generating about 0.1 per unit of risk. If you would invest  2.92  in Carbon Revolution Public on September 23, 2024 and sell it today you would lose (0.14) from holding Carbon Revolution Public or give up 4.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Carbon Revolution Public  vs.  Li Auto

Carbon Revolution Public

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carbon Revolution Public are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Carbon Revolution showed solid returns over the last few months and may actually be approaching a breakup point.

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 Carbon Revolution and Li Auto

The main advantage of trading using opposite Carbon Revolution and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carbon Revolution 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 Carbon Revolution Public 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.