Correlation Between Luckin Coffee and Sands China

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

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

Diversification Opportunities for Luckin Coffee and Sands China

-0.85

Correlation Coefficient

Luckin Coffee  Sands China

Pay attention - limited upside

The 3 months correlation between Luckin and Sands is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and Sands China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sands China and Luckin Coffee 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 Luckin Coffee are associated (or correlated) with Sands China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sands China has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and Sands China go up and down completely randomly.

Pair Corralation between Luckin Coffee and Sands China

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 1.1 times more return on investment than Sands China. However, Luckin Coffee is 1.1 times more volatile than Sands China. It trades about 0.2 of its potential returns per unit of risk. Sands China is currently generating about -0.12 per unit of risk. If you would invest  2,240  in Luckin Coffee on December 21, 2024 and sell it today you would earn a total of  920.00  from holding Luckin Coffee or generate 41.07% return on investment over 90 days.

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

Luckin Coffee  vs.  Sands China

Luckin Coffee

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Luckin Coffee unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sands China

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sands China 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.

Pair Trading with Luckin Coffee and Sands China

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

The idea behind Luckin Coffee and Sands China 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.