Correlation Between Li Auto and Enviri

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

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

Diversification Opportunities for Li Auto and Enviri

0.78

Correlation Coefficient

Li Auto  Enviri

Poor diversification

The 3 months correlation between Li Auto and Enviri is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Enviri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enviri 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 Enviri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enviri has no effect on the direction of Li Auto i.e., Li Auto and Enviri go up and down completely randomly.

Pair Corralation between Li Auto and Enviri

Allowing for the 90-day total investment horizon Li Auto is expected to generate 0.9 times more return on investment than Enviri. However, Li Auto is 1.11 times less risky than Enviri. It trades about -0.05 of its potential returns per unit of risk. Enviri is currently generating about -0.06 per unit of risk. If you would invest  2,792  in Li Auto on October 9, 2024 and sell it today you would lose (402.00) from holding Li Auto or give up 14.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Li Auto  vs.  Enviri

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 latest unfluctuating performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Enviri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enviri 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 basic 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.

Pair Trading with Li Auto and Enviri

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

The idea behind Li Auto and Enviri 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.