Correlation Between Li AutoInc and NWTN Warrant

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

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

Diversification Opportunities for Li AutoInc and NWTN Warrant

-0.31

Correlation Coefficient

Li AutoInc  NWTN Warrant

Very good diversification

The 3 months correlation between Li AutoInc and NWTN is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Li AutoInc and NWTN Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NWTN Warrant 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 NWTN Warrant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NWTN Warrant has no effect on the direction of Li AutoInc i.e., Li AutoInc and NWTN Warrant go up and down completely randomly.

Pair Corralation between Li AutoInc and NWTN Warrant

Allowing for the 90-day total investment horizon Li AutoInc is expected to generate 0.23 times more return on investment than NWTN Warrant. However, Li AutoInc is 4.42 times less risky than NWTN Warrant. It trades about -0.13 of its potential returns per unit of risk. NWTN Warrant is currently generating about -0.09 per unit of risk. If you would invest  3,062  in Li AutoInc on January 31, 2024 and sell it today you would lose (367.00) from holding Li AutoInc or give up 11.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

Li AutoInc  vs.  NWTN Warrant

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.

NWTN Warrant

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NWTN Warrant are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, NWTN Warrant showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li AutoInc and NWTN Warrant

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

The idea behind Li AutoInc and NWTN Warrant 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.