Correlation Between BYD Co and Li Auto
Can any of the company-specific risk be diversified away by investing in both BYD Co 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 BYD Co and Li Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BYD Co Ltd and Li Auto, you can compare the effects of market volatilities on BYD Co 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 BYD Co with a short position of Li Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Li Auto.
Diversification Opportunities for BYD Co and Li Auto
Very weak diversification
The 3 months correlation between BYD and Li Auto is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and BYD Co 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 BYD Co Ltd 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 BYD Co i.e., BYD Co and Li Auto go up and down completely randomly.
Pair Corralation between BYD Co and Li Auto
Assuming the 90 days horizon BYD Co Ltd is expected to generate 0.66 times more return on investment than Li Auto. However, BYD Co Ltd is 1.53 times less risky than Li Auto. It trades about 0.11 of its potential returns per unit of risk. Li Auto is currently generating about -0.06 per unit of risk. If you would invest 6,797 in BYD Co Ltd on November 1, 2024 and sell it today you would earn a total of 233.00 from holding BYD Co Ltd or generate 3.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BYD Co Ltd vs. Li Auto
Performance |
| Timeline |
| BYD Co |
| Li Auto |
BYD Co and Li Auto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BYD Co and Li Auto
The main advantage of trading using opposite BYD Co and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co 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 BYD Co Ltd 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
Other Complementary Tools
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Global Correlations Find global opportunities by holding instruments from different markets | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios |