Correlation Between CVS Health and Luckin Coffee

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

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

Diversification Opportunities for CVS Health and Luckin Coffee

0.8

Correlation Coefficient

CVS Health  Luckin Coffee

Very poor diversification

The 3 months correlation between CVS and Luckin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and CVS Health 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 CVS Health 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 CVS Health i.e., CVS Health and Luckin Coffee go up and down completely randomly.

Pair Corralation between CVS Health and Luckin Coffee

Assuming the 90 days trading horizon CVS Health is expected to generate 0.8 times more return on investment than Luckin Coffee. However, CVS Health is 1.25 times less risky than Luckin Coffee. It trades about 0.23 of its potential returns per unit of risk. Luckin Coffee is currently generating about 0.16 per unit of risk. If you would invest  4,223  in CVS Health on December 30, 2024 and sell it today you would earn a total of  1,953  from holding CVS Health or generate 46.25% return on investment over 90 days.

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

CVS Health  vs.  Luckin Coffee

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Luckin Coffee

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 12 (%) 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 CVS Health and Luckin Coffee

The main advantage of trading using opposite CVS Health and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health 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 CVS Health 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.