Correlation Between Li AutoInc and Harley Davidson

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

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

Diversification Opportunities for Li AutoInc and Harley Davidson

0.08

Correlation Coefficient

Li AutoInc  Harley Davidson

Significant diversification

The 3 months correlation between Li AutoInc and Harley is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Li AutoInc and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson 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 Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of Li AutoInc i.e., Li AutoInc and Harley Davidson go up and down completely randomly.

Pair Corralation between Li AutoInc and Harley Davidson

Allowing for the 90-day total investment horizon Li AutoInc is expected to generate 1.02 times more return on investment than Harley Davidson. However, Li AutoInc is 1.02 times more volatile than Harley Davidson. It trades about -0.17 of its potential returns per unit of risk. Harley Davidson is currently generating about -0.25 per unit of risk. If you would invest  3,104  in Li AutoInc on February 2, 2024 and sell it today you would lose (469.00) from holding Li AutoInc or give up 15.11% of portfolio value over 90 days.

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

Li AutoInc  vs.  Harley Davidson

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.

Harley Davidson

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Harley Davidson are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Harley Davidson is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Li AutoInc and Harley Davidson

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

The idea behind Li AutoInc and Harley Davidson 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.