Correlation Between Canoo and Li AutoInc

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

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

Diversification Opportunities for Canoo and Li AutoInc

-0.53

Correlation Coefficient

Canoo  Li AutoInc

Excellent diversification

The 3 months correlation between Canoo and Li AutoInc is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Canoo Inc and Li AutoInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li AutoInc and Canoo 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 Canoo Inc are associated (or correlated) with Li AutoInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li AutoInc has no effect on the direction of Canoo i.e., Canoo and Li AutoInc go up and down completely randomly.

Pair Corralation between Canoo and Li AutoInc

Given the investment horizon of 90 days Canoo Inc is expected to generate 3.46 times more return on investment than Li AutoInc. However, Canoo is 3.46 times more volatile than Li AutoInc. It trades about 0.09 of its potential returns per unit of risk. Li AutoInc is currently generating about -0.23 per unit of risk. If you would invest  241.00  in Canoo Inc on January 31, 2024 and sell it today you would earn a total of  41.00  from holding Canoo Inc or generate 17.01% return on investment over 90 days.

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

Canoo Inc  vs.  Li AutoInc

Canoo Inc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Canoo Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Canoo is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Li AutoInc

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Li AutoInc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Li AutoInc is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Canoo and Li AutoInc

The main advantage of trading using opposite Canoo and Li AutoInc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canoo position performs unexpectedly, Li AutoInc 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 AutoInc will offset losses from the drop in Li AutoInc's long position.

The idea behind Canoo Inc and Li AutoInc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.