Correlation Between Lucid and Li Auto

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

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

Diversification Opportunities for Lucid and Li Auto

-0.63

Correlation Coefficient

Lucid  Li Auto

Excellent diversification

The 3 months correlation between Lucid and Li Auto is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lucid Group and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Lucid 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 Lucid Group 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 Lucid i.e., Lucid and Li Auto go up and down completely randomly.

Pair Corralation between Lucid and Li Auto

Given the investment horizon of 90 days Lucid Group is expected to under-perform the Li Auto. In addition to that, Lucid is 1.13 times more volatile than Li Auto. It trades about -0.07 of its total potential returns per unit of risk. Li Auto is currently generating about 0.05 per unit of volatility. If you would invest  2,427  in Li Auto on December 28, 2024 and sell it today you would earn a total of  187.00  from holding Li Auto or generate 7.7% return on investment over 90 days.

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

Lucid Group  vs.  Li Auto

Lucid Group

Risk-Adjusted Performance

Very Weak

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

Li Auto

Risk-Adjusted Performance

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 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lucid and Li Auto

The main advantage of trading using opposite Lucid and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lucid 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 Lucid Group 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.