Correlation Between Sumitomo Mitsui and Luckin Coffee

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

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

Diversification Opportunities for Sumitomo Mitsui and Luckin Coffee

0.32

Correlation Coefficient

Sumitomo Mitsui  Luckin Coffee

Weak diversification

The 3 months correlation between Sumitomo and Luckin is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Sumitomo Mitsui 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 Sumitomo Mitsui Construction 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 Sumitomo Mitsui i.e., Sumitomo Mitsui and Luckin Coffee go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Luckin Coffee

Assuming the 90 days horizon Sumitomo Mitsui Construction is expected to generate 0.43 times more return on investment than Luckin Coffee. However, Sumitomo Mitsui Construction is 2.3 times less risky than Luckin Coffee. It trades about -0.03 of its potential returns per unit of risk. Luckin Coffee is currently generating about -0.02 per unit of risk. If you would invest  254.00  in Sumitomo Mitsui Construction on October 4, 2024 and sell it today you would lose (10.00) from holding Sumitomo Mitsui Construction or give up 3.94% of portfolio value over 90 days.

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

Sumitomo Mitsui Construction  vs.  Luckin Coffee

Sumitomo Mitsui Cons

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Mitsui Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Luckin Coffee

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luckin Coffee has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Luckin Coffee is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sumitomo Mitsui and Luckin Coffee

The main advantage of trading using opposite Sumitomo Mitsui and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Mitsui 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 Sumitomo Mitsui Construction 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.