Correlation Between Ferrari NV and Li Auto

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

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

Diversification Opportunities for Ferrari NV and Li Auto

0.7

Correlation Coefficient

Ferrari NV  Li Auto

Poor diversification

The 3 months correlation between Ferrari and Li Auto is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Ferrari NV 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 Ferrari NV 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 Ferrari NV i.e., Ferrari NV and Li Auto go up and down completely randomly.

Pair Corralation between Ferrari NV and Li Auto

Given the investment horizon of 90 days Ferrari NV is expected to generate 0.5 times more return on investment than Li Auto. However, Ferrari NV is 2.02 times less risky than Li Auto. It trades about 0.11 of its potential returns per unit of risk. Li Auto is currently generating about -0.06 per unit of risk. If you would invest  42,530  in Ferrari NV on October 20, 2024 and sell it today you would earn a total of  1,057  from holding Ferrari NV or generate 2.49% return on investment over 90 days.

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

Ferrari NV  vs.  Li Auto

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 unfluctuating 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.

Pair Trading with Ferrari NV and Li Auto

The main advantage of trading using opposite Ferrari NV and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferrari NV 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 Ferrari NV 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.