Correlation Between Sea and Li Auto

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

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

Diversification Opportunities for Sea and Li Auto

-0.54

Correlation Coefficient

Sea  Li Auto

Excellent diversification

The 3 months correlation between Sea and Li Auto is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Sea 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 Sea 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 Sea i.e., Sea and Li Auto go up and down completely randomly.

Pair Corralation between Sea and Li Auto

Allowing for the 90-day total investment horizon Sea is expected to generate 0.91 times more return on investment than Li Auto. However, Sea is 1.1 times less risky than Li Auto. It trades about 0.06 of its potential returns per unit of risk. Li Auto is currently generating about 0.02 per unit of risk. 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

Sea  vs.  Li Auto

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.

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.

Pair Trading with Sea and Li Auto

The main advantage of trading using opposite Sea and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.