Correlation Between Li Auto and Dine Brands

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

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

Diversification Opportunities for Li Auto and Dine Brands

-0.1

Correlation Coefficient

Li Auto  Dine Brands

Good diversification

The 3 months correlation between Li Auto and Dine is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Dine Brands Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dine Brands Global and Li Auto 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 Li Auto are associated (or correlated) with Dine Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dine Brands Global has no effect on the direction of Li Auto i.e., Li Auto and Dine Brands go up and down completely randomly.

Pair Corralation between Li Auto and Dine Brands

Allowing for the 90-day total investment horizon Li Auto is expected to under-perform the Dine Brands. But the stock apears to be less risky and, when comparing its historical volatility, Li Auto is 1.09 times less risky than Dine Brands. The stock trades about -0.15 of its potential returns per unit of risk. The Dine Brands Global is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,045  in Dine Brands Global on October 26, 2024 and sell it today you would earn a total of  42.00  from holding Dine Brands Global or generate 1.38% return on investment over 90 days.

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

Li Auto  vs.  Dine Brands Global

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.

Dine Brands Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dine Brands Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Dine Brands is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Li Auto and Dine Brands

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

The idea behind Li Auto and Dine Brands Global 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.