Correlation Between BorgWarner and Li Auto

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

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

Diversification Opportunities for BorgWarner and Li Auto

0.68

Correlation Coefficient

BorgWarner  Li Auto

Poor diversification

The 3 months correlation between BorgWarner and Li Auto is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and BorgWarner 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 BorgWarner 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 BorgWarner i.e., BorgWarner and Li Auto go up and down completely randomly.

Pair Corralation between BorgWarner and Li Auto

Considering the 90-day investment horizon BorgWarner is expected to generate 3.23 times less return on investment than Li Auto. But when comparing it to its historical volatility, BorgWarner is 3.02 times less risky than Li Auto. It trades about 0.05 of its potential returns per unit of risk. Li Auto is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,113  in Li Auto on August 21, 2024 and sell it today you would earn a total of  185.00  from holding Li Auto or generate 8.76% return on investment over 90 days.

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

BorgWarner  vs.  Li Auto

BorgWarner

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BorgWarner 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

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Li Auto demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BorgWarner and Li Auto

The main advantage of trading using opposite BorgWarner and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BorgWarner 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 BorgWarner 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.