Correlation Between Li Auto and Sea

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

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

Diversification Opportunities for Li Auto and Sea

-0.54

Correlation Coefficient

Li Auto  Sea

Excellent diversification

The 3 months correlation between Li Auto and Sea is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Li Auto i.e., Li Auto and Sea go up and down completely randomly.

Pair Corralation between Li Auto and Sea

Allowing for the 90-day total investment horizon Li Auto is expected to generate 2.2 times less return on investment than Sea. In addition to that, Li Auto is 1.1 times more volatile than Sea. It trades about 0.02 of its total potential returns per unit of risk. Sea is currently generating about 0.06 per unit of volatility. If you would invest  5,298  in Sea on September 24, 2024 and sell it today you would earn a total of  5,615  from holding Sea or generate 105.98% return on investment over 90 days.

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

Li Auto  vs.  Sea

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 fairly strong forward indicators, Li Auto is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Sea

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Auto and Sea

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

The idea behind Li Auto and Sea 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.