Correlation Between Meta Platforms and Nio

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Can any of the company-specific risk be diversified away by investing in both Meta Platforms and Nio 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 Meta Platforms and Nio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and Nio Class A, you can compare the effects of market volatilities on Meta Platforms and Nio 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 Meta Platforms with a short position of Nio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and Nio.

Diversification Opportunities for Meta Platforms and Nio

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Meta and Nio is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A and Meta Platforms 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 Meta Platforms are associated (or correlated) with Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of Meta Platforms i.e., Meta Platforms and Nio go up and down completely randomly.

Pair Corralation between Meta Platforms and Nio

Allowing for the 90-day total investment horizon Meta Platforms is expected to under-perform the Nio. But the stock apears to be less risky and, when comparing its historical volatility, Meta Platforms is 1.1 times less risky than Nio. The stock trades about -0.09 of its potential returns per unit of risk. The Nio Class A is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,000  in Nio Class A on December 29, 2023 and sell it today you would lose (1,550) from holding Nio Class A or give up 77.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy11.11%
ValuesDaily Returns

Meta Platforms  vs.  Nio Class A

 Performance 
       Timeline  
Meta Platforms 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Meta Platforms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Nio Class A 

Risk-Adjusted Performance

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Low
 
High
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 uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Meta Platforms and Nio Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Meta Platforms and Nio

The main advantage of trading using opposite Meta Platforms and Nio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms position performs unexpectedly, Nio 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 Nio will offset losses from the drop in Nio's long position.
The idea behind Meta Platforms and Nio Class A 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.
Check out your portfolio center.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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