Correlation Between Constellation Brands and Li Auto

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

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

Diversification Opportunities for Constellation Brands and Li Auto

0.27

Correlation Coefficient

Constellation Brands  Li Auto

Modest diversification

The 3 months correlation between Constellation and Li Auto is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Constellation Brands 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 Constellation Brands Class 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 Constellation Brands i.e., Constellation Brands and Li Auto go up and down completely randomly.

Pair Corralation between Constellation Brands and Li Auto

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Li Auto. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Brands Class is 2.9 times less risky than Li Auto. The stock trades about -0.54 of its potential returns per unit of risk. The Li Auto is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,410  in Li Auto on October 8, 2024 and sell it today you would lose (20.00) from holding Li Auto or give up 0.83% of portfolio value over 90 days.

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

Constellation Brands Class  vs.  Li Auto

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 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 Constellation Brands and Li Auto

The main advantage of trading using opposite Constellation Brands and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands 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 Constellation Brands Class 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.