Correlation Between Luckin Coffee and ETFS Coffee

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

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

Diversification Opportunities for Luckin Coffee and ETFS Coffee

0.16

Correlation Coefficient

Luckin Coffee  ETFS Coffee

Average diversification

The 3 months correlation between Luckin and ETFS is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and ETFS Coffee ETC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Coffee ETC and Luckin Coffee 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 Luckin Coffee are associated (or correlated) with ETFS Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Coffee ETC has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and ETFS Coffee go up and down completely randomly.

Pair Corralation between Luckin Coffee and ETFS Coffee

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 2.44 times less return on investment than ETFS Coffee. In addition to that, Luckin Coffee is 1.84 times more volatile than ETFS Coffee ETC. It trades about 0.06 of its total potential returns per unit of risk. ETFS Coffee ETC is currently generating about 0.28 per unit of volatility. If you would invest  3,600  in ETFS Coffee ETC on September 3, 2024 and sell it today you would earn a total of  1,659  from holding ETFS Coffee ETC or generate 46.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

Luckin Coffee  vs.  ETFS Coffee ETC

Luckin Coffee

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Luckin Coffee unveiled solid returns over the last few months and may actually be approaching a breakup point.

ETFS Coffee ETC

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Coffee ETC are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ETFS Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luckin Coffee and ETFS Coffee

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

The idea behind Luckin Coffee and ETFS Coffee ETC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.