Correlation Between Li Auto and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both Li Auto and Goodyear Tire 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 Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Auto and Goodyear Tire Rubber, you can compare the effects of market volatilities on Li Auto and Goodyear Tire 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 Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and Goodyear Tire.
Diversification Opportunities for Li Auto and Goodyear Tire
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Li Auto and Goodyear is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber 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 Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Li Auto i.e., Li Auto and Goodyear Tire go up and down completely randomly.
Pair Corralation between Li Auto and Goodyear Tire
Allowing for the 90-day total investment horizon Li Auto is expected to generate 1.32 times more return on investment than Goodyear Tire. However, Li Auto is 1.32 times more volatile than Goodyear Tire Rubber. It trades about 0.01 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about 0.0 per unit of risk. If you would invest 2,393 in Li Auto on August 27, 2024 and sell it today you would lose (165.00) from holding Li Auto or give up 6.9% 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. Goodyear Tire Rubber
Performance |
| Timeline |
| Li Auto |
| Goodyear Tire Rubber |
Li Auto and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Auto and Goodyear Tire
The main advantage of trading using opposite Li Auto and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto position performs unexpectedly, Goodyear Tire 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 Goodyear Tire will offset losses from the drop in Goodyear Tire's long position.The idea behind Li Auto and Goodyear Tire Rubber 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.| Goodyear Tire vs. Allison Transmission Holdings | Goodyear Tire vs. Aptiv PLC | Goodyear Tire vs. LKQ Corporation | Goodyear Tire vs. Lear Corporation |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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