Correlation Between Life Electric and Great Wall

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

By analyzing existing cross correlation between Life Electric Vehicles and Great Wall Motor, you can compare the effects of market volatilities on Life Electric and Great Wall 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 Life Electric with a short position of Great Wall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Life Electric and Great Wall.

Diversification Opportunities for Life Electric and Great Wall

-0.44

Correlation Coefficient

Life Electric  Great Wall

Very good diversification

The 3 months correlation between Life and Great is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Life Electric Vehicles and Great Wall Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Wall Motor and Life Electric 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 Life Electric Vehicles are associated (or correlated) with Great Wall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Wall Motor has no effect on the direction of Life Electric i.e., Life Electric and Great Wall go up and down completely randomly.

Pair Corralation between Life Electric and Great Wall

Given the investment horizon of 90 days Life Electric Vehicles is expected to under-perform the Great Wall. In addition to that, Life Electric is 1.03 times more volatile than Great Wall Motor. It trades about -0.22 of its total potential returns per unit of risk. Great Wall Motor is currently generating about -0.1 per unit of volatility. If you would invest  1,757  in Great Wall Motor on October 10, 2024 and sell it today you would lose (130.00) from holding Great Wall Motor or give up 7.4% of portfolio value over 90 days.

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

Life Electric Vehicles  vs.  Great Wall Motor

Life Electric Vehicles

Risk-Adjusted Performance

5 of 100

Modest

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

Great Wall Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Wall Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Life Electric and Great Wall

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

The idea behind Life Electric Vehicles and Great Wall Motor 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.