Correlation Between Li AutoInc and Adient PLC

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

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

Diversification Opportunities for Li AutoInc and Adient PLC

0.23

Correlation Coefficient

Li AutoInc  Adient PLC

Modest diversification

The 3 months correlation between Li AutoInc and Adient is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Li AutoInc and Adient PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adient PLC and Li AutoInc 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 AutoInc are associated (or correlated) with Adient PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adient PLC has no effect on the direction of Li AutoInc i.e., Li AutoInc and Adient PLC go up and down completely randomly.

Pair Corralation between Li AutoInc and Adient PLC

Allowing for the 90-day total investment horizon Li AutoInc is expected to generate 1.73 times more return on investment than Adient PLC. However, Li AutoInc is 1.73 times more volatile than Adient PLC. It trades about -0.04 of its potential returns per unit of risk. Adient PLC is currently generating about -0.08 per unit of risk. If you would invest  3,899  in Li AutoInc on January 23, 2024 and sell it today you would lose (1,408) from holding Li AutoInc or give up 36.11% of portfolio value over 90 days.

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

Li AutoInc  vs.  Adient PLC

Li AutoInc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li AutoInc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Li AutoInc is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Adient PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adient PLC 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 comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Li AutoInc and Adient PLC

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

The idea behind Li AutoInc and Adient PLC 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 Anywhere module to track or share privately all of your investments from the convenience of any device.