Correlation Between Li Auto and Aeye

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

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

Diversification Opportunities for Li Auto and Aeye

-0.25

Correlation Coefficient

Li Auto  Aeye

Very good diversification

The 3 months correlation between Li Auto and Aeye is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Aeye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeye Inc 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 Aeye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeye Inc has no effect on the direction of Li Auto i.e., Li Auto and Aeye go up and down completely randomly.

Pair Corralation between Li Auto and Aeye

Allowing for the 90-day total investment horizon Li Auto is expected to generate 0.27 times more return on investment than Aeye. However, Li Auto is 3.71 times less risky than Aeye. It trades about 0.15 of its potential returns per unit of risk. Aeye Inc is currently generating about -0.01 per unit of risk. If you would invest  2,368  in Li Auto on November 29, 2024 and sell it today you would earn a total of  834.50  from holding Li Auto or generate 35.24% 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.  Aeye Inc

Li Auto

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 11 (%) 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.

Aeye Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeye Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Li Auto and Aeye

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

The idea behind Li Auto and Aeye Inc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.