Correlation Between Performance Food and Luckin Coffee

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

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

Diversification Opportunities for Performance Food and Luckin Coffee

-0.13

Correlation Coefficient

Performance Food  Luckin Coffee

Good diversification

The 3 months correlation between Performance and Luckin is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Performance Food Group and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Performance Food 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 Performance Food Group are associated (or correlated) with Luckin Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luckin Coffee has no effect on the direction of Performance Food i.e., Performance Food and Luckin Coffee go up and down completely randomly.

Pair Corralation between Performance Food and Luckin Coffee

Assuming the 90 days trading horizon Performance Food Group is expected to generate 0.36 times more return on investment than Luckin Coffee. However, Performance Food Group is 2.78 times less risky than Luckin Coffee. It trades about 0.06 of its potential returns per unit of risk. Luckin Coffee is currently generating about 0.02 per unit of risk. If you would invest  5,350  in Performance Food Group on September 26, 2024 and sell it today you would earn a total of  2,700  from holding Performance Food Group or generate 50.47% return on investment over 90 days.

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

Performance Food Group  vs.  Luckin Coffee

Performance Food

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Performance Food Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Performance Food unveiled solid returns over the last few months and may actually be approaching a breakup point.

Luckin Coffee

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Luckin Coffee may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Performance Food and Luckin Coffee

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

The idea behind Performance Food Group and Luckin Coffee 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.