Correlation Between DIVERSIFIED ROYALTY and Luckin Coffee

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

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

Diversification Opportunities for DIVERSIFIED ROYALTY and Luckin Coffee

0.05

Correlation Coefficient

DIVERSIFIED ROYALTY  Luckin Coffee

Significant diversification

The 3 months correlation between DIVERSIFIED and Luckin is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and Luckin Coffee go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and Luckin Coffee

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to under-perform the Luckin Coffee. But the stock apears to be less risky and, when comparing its historical volatility, DIVERSIFIED ROYALTY is 1.79 times less risky than Luckin Coffee. The stock trades about -0.11 of its potential returns per unit of risk. The Luckin Coffee is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,080  in Luckin Coffee on September 25, 2024 and sell it today you would earn a total of  160.00  from holding Luckin Coffee or generate 7.69% return on investment over 90 days.

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

DIVERSIFIED ROYALTY  vs.  Luckin Coffee

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DIVERSIFIED ROYALTY is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Luckin Coffee

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 6 (%) 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.

Pair Trading with DIVERSIFIED ROYALTY and Luckin Coffee

The main advantage of trading using opposite DIVERSIFIED ROYALTY and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.