Correlation Between KLA Tencor and Li Auto

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

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

Diversification Opportunities for KLA Tencor and Li Auto

0.73

Correlation Coefficient

KLA Tencor  Li Auto

Poor diversification

The 3 months correlation between KLA and Li Auto is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and KLA Tencor 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 KLA Tencor 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 KLA Tencor i.e., KLA Tencor and Li Auto go up and down completely randomly.

Pair Corralation between KLA Tencor and Li Auto

Given the investment horizon of 90 days KLA Tencor is expected to generate 0.58 times more return on investment than Li Auto. However, KLA Tencor is 1.71 times less risky than Li Auto. It trades about -0.01 of its potential returns per unit of risk. Li Auto is currently generating about -0.01 per unit of risk. If you would invest  66,848  in KLA Tencor on October 6, 2024 and sell it today you would lose (1,147) from holding KLA Tencor or give up 1.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

KLA Tencor  vs.  Li Auto

KLA Tencor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLA Tencor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Li Auto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li Auto has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with KLA Tencor and Li Auto

The main advantage of trading using opposite KLA Tencor and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KLA Tencor 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 KLA Tencor 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.