Correlation Between Nio and Polestar Automotive

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

By analyzing existing cross correlation between Nio Class A and Polestar Automotive Holding, you can compare the effects of market volatilities on Nio and Polestar Automotive 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 Nio with a short position of Polestar Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nio and Polestar Automotive.

Diversification Opportunities for Nio and Polestar Automotive

0.72

Correlation Coefficient

Nio  Polestar Automotive

Poor diversification

The 3 months correlation between Nio and Polestar is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nio Class A and Polestar Automotive Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polestar Automotive and Nio 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 Nio Class A are associated (or correlated) with Polestar Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polestar Automotive has no effect on the direction of Nio i.e., Nio and Polestar Automotive go up and down completely randomly.

Pair Corralation between Nio and Polestar Automotive

Considering the 90-day investment horizon Nio Class A is expected to generate 0.97 times more return on investment than Polestar Automotive. However, Nio Class A is 1.03 times less risky than Polestar Automotive. It trades about -0.03 of its potential returns per unit of risk. Polestar Automotive Holding is currently generating about -0.11 per unit of risk. If you would invest  555.00  in Nio Class A on September 13, 2024 and sell it today you would lose (78.00) from holding Nio Class A or give up 14.05% of portfolio value over 90 days.

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

Nio Class A  vs.  Polestar Automotive Holding

Nio Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Polestar Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Polestar Automotive Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nio and Polestar Automotive

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

The idea behind Nio Class A and Polestar Automotive Holding 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.