Correlation Between Patterson UTI and Li Auto

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

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

Diversification Opportunities for Patterson UTI and Li Auto

0.17

Correlation Coefficient

Patterson UTI  Li Auto

Average diversification

The 3 months correlation between Patterson and Li Auto is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Patterson UTI Energy and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Patterson UTI 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 Patterson UTI Energy are associated (or correlated) with Li Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Auto has no effect on the direction of Patterson UTI i.e., Patterson UTI and Li Auto go up and down completely randomly.

Pair Corralation between Patterson UTI and Li Auto

Given the investment horizon of 90 days Patterson UTI is expected to generate 2.01 times less return on investment than Li Auto. But when comparing it to its historical volatility, Patterson UTI Energy is 1.02 times less risky than Li Auto. It trades about 0.09 of its potential returns per unit of risk. Li Auto is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,242  in Li Auto on October 5, 2024 and sell it today you would earn a total of  233.00  from holding Li Auto or generate 10.39% return on investment over 90 days.

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

Patterson UTI Energy  vs.  Li Auto

Patterson UTI Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Patterson UTI Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Patterson UTI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Patterson UTI and Li Auto

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

The idea behind Patterson UTI Energy and Li Auto 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.