Correlation Between Li Auto and Toyota
Can any of the company-specific risk be diversified away by investing in both Li Auto and Toyota 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 Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Auto and Toyota Motor, you can compare the effects of market volatilities on Li Auto and Toyota 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 Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and Toyota.
Diversification Opportunities for Li Auto and Toyota
Weak diversification
The 3 months correlation between Li Auto and Toyota is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor 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 Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Li Auto i.e., Li Auto and Toyota go up and down completely randomly.
Pair Corralation between Li Auto and Toyota
Allowing for the 90-day total investment horizon Li Auto is expected to generate 2.53 times more return on investment than Toyota. However, Li Auto is 2.53 times more volatile than Toyota Motor. It trades about 0.0 of its potential returns per unit of risk. Toyota Motor is currently generating about -0.03 per unit of risk. If you would invest 3,026 in Li Auto on November 3, 2024 and sell it today you would lose (684.00) from holding Li Auto or give up 22.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Li Auto vs. Toyota Motor
Performance |
| Timeline |
| Li Auto |
| Toyota Motor |
Li Auto and Toyota Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Auto and Toyota
The main advantage of trading using opposite Li Auto and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto position performs unexpectedly, Toyota 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 Toyota will offset losses from the drop in Toyota's long position.The idea behind Li Auto and Toyota Motor 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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