Correlation Between Li AutoInc and LCI Industries

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

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

Diversification Opportunities for Li AutoInc and LCI Industries

0.59

Correlation Coefficient

Li AutoInc  LCI Industries

Very weak diversification

The 3 months correlation between Li AutoInc and LCI is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Li AutoInc and LCI Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LCI Industries 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 LCI Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LCI Industries has no effect on the direction of Li AutoInc i.e., Li AutoInc and LCI Industries go up and down completely randomly.

Pair Corralation between Li AutoInc and LCI Industries

Allowing for the 90-day total investment horizon Li AutoInc is expected to under-perform the LCI Industries. In addition to that, Li AutoInc is 2.14 times more volatile than LCI Industries. It trades about -0.07 of its total potential returns per unit of risk. LCI Industries is currently generating about 0.18 per unit of volatility. If you would invest  10,585  in LCI Industries on February 16, 2024 and sell it today you would earn a total of  863.00  from holding LCI Industries or generate 8.15% return on investment over 90 days.

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

Li AutoInc  vs.  LCI Industries

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 latest unfluctuating performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

LCI Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Li AutoInc and LCI Industries

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

The idea behind Li AutoInc and LCI Industries 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.