Correlation Between Nio and Li AutoInc

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

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

Diversification Opportunities for Nio and Li AutoInc

0.49

Correlation Coefficient

Nio  Li AutoInc

Very weak diversification

The 3 months correlation between Nio and Li AutoInc is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Nio Class A and Li AutoInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li AutoInc and Nio 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 Nio Class A 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 Nio i.e., Nio and Li AutoInc go up and down completely randomly.

Pair Corralation between Nio and Li AutoInc

Considering the 90-day investment horizon Nio Class A is expected to generate 1.04 times more return on investment than Li AutoInc. However, Nio is 1.04 times more volatile than Li AutoInc. It trades about 0.04 of its potential returns per unit of risk. Li AutoInc is currently generating about -0.16 per unit of risk. If you would invest  464.00  in Nio Class A on February 1, 2024 and sell it today you would earn a total of  8.00  from holding Nio Class A or generate 1.72% return on investment over 90 days.

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

Nio Class A  vs.  Li AutoInc

Nio Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Li AutoInc

Risk-Adjusted Performance

0 of 100

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nio and Li AutoInc

The main advantage of trading using opposite Nio and Li AutoInc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nio 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 Nio Class A 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.