Correlation Between Lear and Li Auto
Can any of the company-specific risk be diversified away by investing in both Lear 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 Lear and Li Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and Li Auto, you can compare the effects of market volatilities on Lear 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 Lear with a short position of Li Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and Li Auto.
Diversification Opportunities for Lear and Li Auto
Good diversification
The 3 months correlation between Lear and Li Auto is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Lear 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 Lear Corporation 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 Lear i.e., Lear and Li Auto go up and down completely randomly.
Pair Corralation between Lear and Li Auto
Considering the 90-day investment horizon Lear Corporation is expected to under-perform the Li Auto. But the stock apears to be less risky and, when comparing its historical volatility, Lear Corporation is 2.2 times less risky than Li Auto. The stock trades about -0.03 of its potential returns per unit of risk. The Li Auto is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,361 in Li Auto on November 19, 2024 and sell it today you would earn a total of 223.00 from holding Li Auto or generate 9.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. Li Auto
Performance |
| Timeline |
| Lear |
| Li Auto |
Lear and Li Auto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and Li Auto
The main advantage of trading using opposite Lear and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear 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 Lear Corporation 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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