Correlation Between Universal Music and Li Auto

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

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

Diversification Opportunities for Universal Music and Li Auto

0.37

Correlation Coefficient

Universal Music  Li Auto

Weak diversification

The 3 months correlation between Universal and Li Auto is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Universal Music 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 Universal Music Group 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 Universal Music i.e., Universal Music and Li Auto go up and down completely randomly.

Pair Corralation between Universal Music and Li Auto

Assuming the 90 days horizon Universal Music is expected to generate 1.9 times less return on investment than Li Auto. But when comparing it to its historical volatility, Universal Music Group is 1.34 times less risky than Li Auto. It trades about 0.01 of its potential returns per unit of risk. Li Auto is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,471  in Li Auto on October 7, 2024 and sell it today you would earn a total of  4.00  from holding Li Auto or generate 0.16% return on investment over 90 days.

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

Universal Music Group  vs.  Li Auto

Universal Music Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Universal Music and Li Auto

The main advantage of trading using opposite Universal Music and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music 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 Universal Music Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.