Correlation Between Li Auto and ServiceNow

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

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

Diversification Opportunities for Li Auto and ServiceNow

-0.74

Correlation Coefficient

Li Auto  ServiceNow

Pay attention - limited upside

The 3 months correlation between Li Auto and ServiceNow is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and ServiceNow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ServiceNow 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 ServiceNow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ServiceNow has no effect on the direction of Li Auto i.e., Li Auto and ServiceNow go up and down completely randomly.

Pair Corralation between Li Auto and ServiceNow

Allowing for the 90-day total investment horizon Li Auto is expected to generate 3.67 times more return on investment than ServiceNow. However, Li Auto is 3.67 times more volatile than ServiceNow. It trades about 0.14 of its potential returns per unit of risk. ServiceNow is currently generating about -0.3 per unit of risk. If you would invest  2,425  in Li Auto on December 6, 2024 and sell it today you would earn a total of  342.00  from holding Li Auto or generate 14.1% return on investment over 90 days.

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

Li Auto  vs.  ServiceNow

Li Auto

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 8 (%) 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.

ServiceNow

Risk-Adjusted Performance

Very Weak

Over the last 90 days ServiceNow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Li Auto and ServiceNow

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

The idea behind Li Auto and ServiceNow 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.