Correlation Between Rivian Automotive and Li Auto

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

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

Diversification Opportunities for Rivian Automotive and Li Auto

0.3

Correlation Coefficient

Rivian Automotive  Li Auto

Weak diversification

The 3 months correlation between Rivian and Li Auto is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Rivian Automotive and Li Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Auto and Rivian Automotive 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 Rivian Automotive 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 Rivian Automotive i.e., Rivian Automotive and Li Auto go up and down completely randomly.

Pair Corralation between Rivian Automotive and Li Auto

Given the investment horizon of 90 days Rivian Automotive is expected to under-perform the Li Auto. But the stock apears to be less risky and, when comparing its historical volatility, Rivian Automotive is 1.0 times less risky than Li Auto. The stock trades about -0.04 of its potential returns per unit of risk. The Li Auto is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,525  in Li Auto on May 5, 2025 and sell it today you would lose (1.00) from holding Li Auto or give up 0.04% of portfolio value over 90 days.

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

Rivian Automotive  vs.  Li Auto

Rivian Automotive

Risk-Adjusted Performance

Very Weak

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

Li Auto

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Li Auto are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Li Auto is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Rivian Automotive and Li Auto

The main advantage of trading using opposite Rivian Automotive and Li Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rivian Automotive 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 Rivian Automotive 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..