Correlation Between Stepan and Li Auto
Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and Li Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Li Auto, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of Li Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Li Auto.
Diversification Opportunities for Stepan and Li Auto
Significant diversification
The 3 months correlation between Stepan and Li Auto is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Li Auto go up and down completely randomly.
Pair Corralation between Stepan and Li Auto
Considering the 90-day investment horizon Stepan Company is expected to generate 0.41 times more return on investment than Li Auto. However, Stepan Company is 2.44 times less risky than Li Auto. It trades about -0.03 of its potential returns per unit of risk. Li Auto is currently generating about -0.02 per unit of risk. If you would invest 8,897 in Stepan Company on September 12, 2024 and sell it today you would lose (1,347) from holding Stepan Company or give up 15.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Li Auto
Performance |
| Timeline |
| Stepan Company |
| Li Auto |
Stepan and Li Auto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Li Auto
The main advantage of trading using opposite Stepan and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Commodity Directory Find actively traded commodities issued by global exchanges |