Correlation Between Li Auto and Nio
Can any of the company-specific risk be diversified away by investing in both Li Auto and Nio 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 Nio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Auto and Nio Class A, you can compare the effects of market volatilities on Li Auto and Nio 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 Nio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and Nio.
Diversification Opportunities for Li Auto and Nio
Poor diversification
The 3 months correlation between Li Auto and Nio is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A 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 Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of Li Auto i.e., Li Auto and Nio go up and down completely randomly.
Pair Corralation between Li Auto and Nio
Allowing for the 90-day total investment horizon Li Auto is expected to generate 0.9 times more return on investment than Nio. However, Li Auto is 1.11 times less risky than Nio. It trades about 0.02 of its potential returns per unit of risk. Nio Class A is currently generating about -0.03 per unit of risk. If you would invest 2,211 in Li Auto on August 24, 2024 and sell it today you would earn a total of 49.00 from holding Li Auto or generate 2.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Li Auto vs. Nio Class A
Performance |
| Timeline |
| Li Auto |
| Nio Class A |
Li Auto and Nio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Auto and Nio
The main advantage of trading using opposite Li Auto and Nio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto position performs unexpectedly, Nio 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 Nio will offset losses from the drop in Nio's long position.The idea behind Li Auto and Nio Class A 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.| Nio vs. Lucid Group | Nio vs. Rivian Automotive | Nio vs. Polestar Automotive Holding | Nio vs. Mullen Automotive |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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