Correlation Between Li Auto and Aptiv PLC
Can any of the company-specific risk be diversified away by investing in both Li Auto and Aptiv PLC 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 Auto and Aptiv PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Auto and Aptiv PLC, you can compare the effects of market volatilities on Li Auto and Aptiv PLC 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 Auto with a short position of Aptiv PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and Aptiv PLC.
Diversification Opportunities for Li Auto and Aptiv PLC
Average diversification
The 3 months correlation between Li Auto and Aptiv is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Aptiv PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptiv PLC and Li Auto 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 Auto are associated (or correlated) with Aptiv PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptiv PLC has no effect on the direction of Li Auto i.e., Li Auto and Aptiv PLC go up and down completely randomly.
Pair Corralation between Li Auto and Aptiv PLC
Allowing for the 90-day total investment horizon Li Auto is expected to generate 1.7 times more return on investment than Aptiv PLC. However, Li Auto is 1.7 times more volatile than Aptiv PLC. It trades about -0.02 of its potential returns per unit of risk. Aptiv PLC is currently generating about -0.05 per unit of risk. If you would invest 3,528 in Li Auto on September 4, 2024 and sell it today you would lose (1,258) from holding Li Auto or give up 35.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Li Auto vs. Aptiv PLC
Performance |
| Timeline |
| Li Auto |
| Aptiv PLC |
Li Auto and Aptiv PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Auto and Aptiv PLC
The main advantage of trading using opposite Li Auto and Aptiv PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto position performs unexpectedly, Aptiv PLC 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 Aptiv PLC will offset losses from the drop in Aptiv PLC's long position.The idea behind Li Auto and Aptiv PLC 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.| Aptiv PLC vs. Ford Motor | Aptiv PLC vs. General Motors | Aptiv PLC vs. Goodyear Tire Rubber | Aptiv PLC vs. Li Auto |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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