Correlation Between Li Auto and Envirotech Vehicles

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

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

Diversification Opportunities for Li Auto and Envirotech Vehicles

0.33

Correlation Coefficient

Li Auto  Envirotech Vehicles

Weak diversification

The 3 months correlation between Li Auto and Envirotech is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Envirotech Vehicles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Envirotech Vehicles 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 Envirotech Vehicles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Envirotech Vehicles has no effect on the direction of Li Auto i.e., Li Auto and Envirotech Vehicles go up and down completely randomly.

Pair Corralation between Li Auto and Envirotech Vehicles

Allowing for the 90-day total investment horizon Li Auto is expected to generate 1.2 times more return on investment than Envirotech Vehicles. However, Li Auto is 1.2 times more volatile than Envirotech Vehicles. It trades about 0.08 of its potential returns per unit of risk. Envirotech Vehicles is currently generating about -0.12 per unit of risk. If you would invest  1,905  in Li Auto on September 14, 2024 and sell it today you would earn a total of  374.00  from holding Li Auto or generate 19.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Li Auto  vs.  Envirotech Vehicles

Li Auto

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Li Auto demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Envirotech Vehicles

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Envirotech Vehicles has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Li Auto and Envirotech Vehicles

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

The idea behind Li Auto and Envirotech Vehicles 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.