Correlation Between Li Auto and 50249AAK9

Can any of the company-specific risk be diversified away by investing in both Li Auto and 50249AAK9 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 50249AAK9 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Li Auto and LYB 38 01 OCT 60, you can compare the effects of market volatilities on Li Auto and 50249AAK9 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 50249AAK9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and 50249AAK9.

Diversification Opportunities for Li Auto and 50249AAK9

0.66

Correlation Coefficient

Li Auto  50249AAK9

Poor diversification

The 3 months correlation between Li Auto and 50249AAK9 is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and LYB 38 01 OCT 60 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LYB 38 01 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 50249AAK9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LYB 38 01 has no effect on the direction of Li Auto i.e., Li Auto and 50249AAK9 go up and down completely randomly.

Pair Corralation between Li Auto and 50249AAK9

Allowing for the 90-day total investment horizon Li Auto is expected to under-perform the 50249AAK9. In addition to that, Li Auto is 1.89 times more volatile than LYB 38 01 OCT 60. It trades about -0.06 of its total potential returns per unit of risk. LYB 38 01 OCT 60 is currently generating about -0.04 per unit of volatility. If you would invest  7,207  in LYB 38 01 OCT 60 on October 12, 2024 and sell it today you would lose (265.00) from holding LYB 38 01 OCT 60 or give up 3.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	62.3%
Values	Daily Returns

Li Auto  vs.  LYB 38 01 OCT 60

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 unfluctuating performance in the last few months, the Stock's forward 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.

LYB 38 01

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LYB 38 01 OCT 60 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 50249AAK9 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Li Auto and 50249AAK9

The main advantage of trading using opposite Li Auto and 50249AAK9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto position performs unexpectedly, 50249AAK9 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 50249AAK9 will offset losses from the drop in 50249AAK9's long position.

The idea behind Li Auto and LYB 38 01 OCT 60 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.