Correlation Between Li AutoInc and ECD Automotive

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

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

Diversification Opportunities for Li AutoInc and ECD Automotive

-0.43

Correlation Coefficient

Li AutoInc  ECD Automotive

Very good diversification

The 3 months correlation between Li AutoInc and ECD is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Li AutoInc and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design and Li AutoInc 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 Li AutoInc are associated (or correlated) with ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of Li AutoInc i.e., Li AutoInc and ECD Automotive go up and down completely randomly.

Pair Corralation between Li AutoInc and ECD Automotive

Allowing for the 90-day total investment horizon Li AutoInc is expected to under-perform the ECD Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Li AutoInc is 2.21 times less risky than ECD Automotive. The stock trades about -0.25 of its potential returns per unit of risk. The ECD Automotive Design is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  89.00  in ECD Automotive Design on January 29, 2024 and sell it today you would earn a total of  23.00  from holding ECD Automotive Design or generate 25.84% return on investment over 90 days.

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

Li AutoInc  vs.  ECD Automotive Design

Li AutoInc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li AutoInc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Li AutoInc is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

ECD Automotive Design

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ECD Automotive Design are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental indicators, ECD Automotive sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li AutoInc and ECD Automotive

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

The idea behind Li AutoInc and ECD Automotive Design 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.