Correlation Between Li Auto and Hesai Group

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

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

Diversification Opportunities for Li Auto and Hesai Group

0.69

Correlation Coefficient

Li Auto  Hesai Group

Poor diversification

The 3 months correlation between Li Auto and Hesai is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Hesai Group American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hesai Group American 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 Hesai Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hesai Group American has no effect on the direction of Li Auto i.e., Li Auto and Hesai Group go up and down completely randomly.

Pair Corralation between Li Auto and Hesai Group

Allowing for the 90-day total investment horizon Li Auto is expected to generate 3.17 times less return on investment than Hesai Group. But when comparing it to its historical volatility, Li Auto is 2.3 times less risky than Hesai Group. It trades about 0.05 of its potential returns per unit of risk. Hesai Group American is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,470  in Hesai Group American on December 28, 2024 and sell it today you would earn a total of  256.00  from holding Hesai Group American or generate 17.41% return on investment over 90 days.

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

Li Auto  vs.  Hesai Group American

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.

Hesai Group American

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hesai Group American are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Hesai Group demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Auto and Hesai Group

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

The idea behind Li Auto and Hesai Group American 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.