Correlation Between Li Auto and ECARX Holdings

Can any of the company-specific risk be diversified away by investing in both Li Auto and ECARX Holdings 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 ECARX Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Li Auto and ECARX Holdings Warrants, you can compare the effects of market volatilities on Li Auto and ECARX Holdings 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 ECARX Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Auto and ECARX Holdings.

Diversification Opportunities for Li Auto and ECARX Holdings

-0.25

Correlation Coefficient

Li Auto  ECARX Holdings

Very good diversification

The 3 months correlation between Li Auto and ECARX is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and ECARX Holdings Warrants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECARX Holdings Warrants 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 ECARX Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECARX Holdings Warrants has no effect on the direction of Li Auto i.e., Li Auto and ECARX Holdings go up and down completely randomly.

Pair Corralation between Li Auto and ECARX Holdings

Allowing for the 90-day total investment horizon Li Auto is expected to generate 47.95 times less return on investment than ECARX Holdings. But when comparing it to its historical volatility, Li Auto is 4.05 times less risky than ECARX Holdings. It trades about 0.02 of its potential returns per unit of risk. ECARX Holdings Warrants is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1.98  in ECARX Holdings Warrants on September 25, 2024 and sell it today you would earn a total of  1.82  from holding ECARX Holdings Warrants or generate 91.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	53.97%
Values	Daily Returns

Li Auto  vs.  ECARX Holdings Warrants

Li Auto

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Li Auto is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

ECARX Holdings Warrants

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ECARX Holdings Warrants are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, ECARX Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Auto and ECARX Holdings

The main advantage of trading using opposite Li Auto and ECARX Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto position performs unexpectedly, ECARX Holdings 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 ECARX Holdings will offset losses from the drop in ECARX Holdings' long position.

The idea behind Li Auto and ECARX Holdings Warrants 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.