Correlation Between Nio and ECD Automotive

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

By analyzing existing cross correlation between Nio Class A and ECD Automotive Design, you can compare the effects of market volatilities on Nio and ECD Automotive 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 Nio with a short position of ECD Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nio and ECD Automotive.

Diversification Opportunities for Nio and ECD Automotive

0.72

Correlation Coefficient

Nio  ECD Automotive

Poor diversification

The 3 months correlation between Nio and ECD is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nio Class A and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design and Nio 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 Nio Class A are associated (or correlated) with ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of Nio i.e., Nio and ECD Automotive go up and down completely randomly.

Pair Corralation between Nio and ECD Automotive

Considering the 90-day investment horizon Nio Class A is expected to under-perform the ECD Automotive. In addition to that, Nio is 1.18 times more volatile than ECD Automotive Design. It trades about -0.11 of its total potential returns per unit of risk. ECD Automotive Design is currently generating about -0.05 per unit of volatility. If you would invest  97.00  in ECD Automotive Design on October 23, 2024 and sell it today you would lose (3.00) from holding ECD Automotive Design or give up 3.09% of portfolio value over 90 days.

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

Nio Class A  vs.  ECD Automotive Design

Nio Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

ECD Automotive Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Nio and ECD Automotive

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

The idea behind Nio Class A and ECD Automotive Design 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.