Correlation Between Xpeng and Li Auto

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

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

Diversification Opportunities for Xpeng and Li Auto

0.78

Correlation Coefficient

Xpeng  Li Auto

Poor diversification

The 3 months correlation between Xpeng and Li Auto is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Xpeng Inc and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Xpeng 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 Xpeng Inc 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 Xpeng i.e., Xpeng and Li Auto go up and down completely randomly.

Pair Corralation between Xpeng and Li Auto

Given the investment horizon of 90 days Xpeng Inc is expected to generate 1.27 times more return on investment than Li Auto. However, Xpeng is 1.27 times more volatile than Li Auto. It trades about 0.05 of its potential returns per unit of risk. Li Auto is currently generating about 0.02 per unit of risk. If you would invest  1,028  in Xpeng Inc on December 28, 2024 and sell it today you would earn a total of  943.50  from holding Xpeng Inc or generate 91.78% return on investment over 90 days.

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

Xpeng Inc  vs.  Li Auto

Xpeng Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xpeng Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Xpeng showed solid returns over the last few months and may actually be approaching a breakup point.

Li Auto

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Li Auto demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xpeng and Li Auto

The main advantage of trading using opposite Xpeng and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xpeng 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 Xpeng Inc 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.