Correlation Between Li Auto and SpareBank

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

By analyzing existing cross correlation between Li Auto and SpareBank 1 SR Bank, you can compare the effects of market volatilities on Li Auto and SpareBank 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 SpareBank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and SpareBank.

Diversification Opportunities for Li Auto and SpareBank

0.0

Correlation Coefficient

Li Auto  SpareBank

Pay attention - limited upside

The 3 months correlation between Li Auto and SpareBank is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and SpareBank 1 SR Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SpareBank 1 SR 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 SpareBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SpareBank 1 SR has no effect on the direction of Li Auto i.e., Li Auto and SpareBank go up and down completely randomly.

Pair Corralation between Li Auto and SpareBank

Allowing for the 90-day total investment horizon Li Auto is expected to generate 4.1 times less return on investment than SpareBank. But when comparing it to its historical volatility, Li Auto is 1.57 times less risky than SpareBank. It trades about 0.02 of its potential returns per unit of risk. SpareBank 1 SR Bank is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  715.00  in SpareBank 1 SR Bank on October 11, 2024 and sell it today you would earn a total of  750.00  from holding SpareBank 1 SR Bank or generate 104.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	65.05%
Values	Daily Returns

Li Auto  vs.  SpareBank 1 SR Bank

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 abnormal 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.

SpareBank 1 SR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SpareBank 1 SR Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, SpareBank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Li Auto and SpareBank

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

The idea behind Li Auto and SpareBank 1 SR Bank 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.