Correlation Between Luckin Coffee and TransAlta

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

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

Diversification Opportunities for Luckin Coffee and TransAlta

0.07

Correlation Coefficient

Luckin Coffee  TransAlta

Significant diversification

The 3 months correlation between Luckin and TransAlta is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and TransAlta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta 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 TransAlta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and TransAlta go up and down completely randomly.

Pair Corralation between Luckin Coffee and TransAlta

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 9.77 times less return on investment than TransAlta. In addition to that, Luckin Coffee is 1.45 times more volatile than TransAlta. It trades about 0.02 of its total potential returns per unit of risk. TransAlta is currently generating about 0.23 per unit of volatility. If you would invest  930.00  in TransAlta on September 30, 2024 and sell it today you would earn a total of  433.00  from holding TransAlta or generate 46.56% return on investment over 90 days.

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

Luckin Coffee  vs.  TransAlta

Luckin Coffee

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Luckin Coffee is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

TransAlta

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, TransAlta reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luckin Coffee and TransAlta

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

The idea behind Luckin Coffee and TransAlta 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.