Correlation Between Fortescue Metals and Luckin Coffee

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

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

Diversification Opportunities for Fortescue Metals and Luckin Coffee

-0.3

Correlation Coefficient

Fortescue Metals  Luckin Coffee

Very good diversification

The 3 months correlation between Fortescue and Luckin is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Fortescue Metals 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 Fortescue Metals 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 Fortescue Metals i.e., Fortescue Metals and Luckin Coffee go up and down completely randomly.

Pair Corralation between Fortescue Metals and Luckin Coffee

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Luckin Coffee. But the stock apears to be less risky and, when comparing its historical volatility, Fortescue Metals Group is 1.62 times less risky than Luckin Coffee. The stock trades about -0.12 of its potential returns per unit of risk. The Luckin Coffee is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,280  in Luckin Coffee on December 24, 2024 and sell it today you would earn a total of  740.00  from holding Luckin Coffee or generate 32.46% return on investment over 90 days.

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

Fortescue Metals Group  vs.  Luckin Coffee

Fortescue Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Fortescue Metals and Luckin Coffee

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

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.