Correlation Between Magna International and Li Auto

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

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

Diversification Opportunities for Magna International and Li Auto

-0.71

Correlation Coefficient

Magna International  Li Auto

Pay attention - limited upside

The 3 months correlation between Magna and Li Auto is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Magna International and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Magna International 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 Magna International 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 Magna International i.e., Magna International and Li Auto go up and down completely randomly.

Pair Corralation between Magna International and Li Auto

Considering the 90-day investment horizon Magna International is expected to generate 0.48 times more return on investment than Li Auto. However, Magna International is 2.1 times less risky than Li Auto. It trades about 0.04 of its potential returns per unit of risk. Li Auto is currently generating about 0.02 per unit of risk. If you would invest  4,060  in Magna International on September 29, 2024 and sell it today you would earn a total of  156.00  from holding Magna International or generate 3.84% return on investment over 90 days.

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

Magna International  vs.  Li Auto

Magna International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Magna International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Magna International and Li Auto

The main advantage of trading using opposite Magna International and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International 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 Magna International 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.