Correlation Between Li Auto and RLX Technology

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

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

Diversification Opportunities for Li Auto and RLX Technology

0.59

Correlation Coefficient

Li Auto  RLX Technology

Very weak diversification

The 3 months correlation between Li Auto and RLX is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and RLX Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLX Technology 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 RLX Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLX Technology has no effect on the direction of Li Auto i.e., Li Auto and RLX Technology go up and down completely randomly.

Pair Corralation between Li Auto and RLX Technology

Allowing for the 90-day total investment horizon Li Auto is expected to generate 1.24 times more return on investment than RLX Technology. However, Li Auto is 1.24 times more volatile than RLX Technology. It trades about 0.09 of its potential returns per unit of risk. RLX Technology is currently generating about 0.05 per unit of risk. If you would invest  2,335  in Li Auto on December 19, 2024 and sell it today you would earn a total of  427.00  from holding Li Auto or generate 18.29% return on investment over 90 days.

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

Li Auto  vs.  RLX Technology

Li Auto

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 6 (%) 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.

RLX Technology

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RLX Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent essential indicators, RLX Technology may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Li Auto and RLX Technology

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

The idea behind Li Auto and RLX Technology 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.