Correlation Between Li Auto and Luminar Technologies

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

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

Diversification Opportunities for Li Auto and Luminar Technologies

0.43

Correlation Coefficient

Li Auto  Luminar Technologies

Very weak diversification

The 3 months correlation between Li Auto and Luminar is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Luminar Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luminar Technologies 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 Luminar Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luminar Technologies has no effect on the direction of Li Auto i.e., Li Auto and Luminar Technologies go up and down completely randomly.

Pair Corralation between Li Auto and Luminar Technologies

Allowing for the 90-day total investment horizon Li Auto is expected to generate 0.62 times more return on investment than Luminar Technologies. However, Li Auto is 1.6 times less risky than Luminar Technologies. It trades about 0.02 of its potential returns per unit of risk. Luminar Technologies is currently generating about -0.17 per unit of risk. If you would invest  2,565  in Li Auto on September 29, 2024 and sell it today you would lose (16.00) from holding Li Auto or give up 0.62% of portfolio value over 90 days.

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

Li Auto  vs.  Luminar Technologies

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.

Luminar Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luminar Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Li Auto and Luminar Technologies

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

The idea behind Li Auto and Luminar Technologies 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.