Correlation Between Luckin Coffee and Gamma Communications

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

By analyzing existing cross correlation between Luckin Coffee and Gamma Communications plc, you can compare the effects of market volatilities on Luckin Coffee and Gamma Communications 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 Gamma Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luckin Coffee and Gamma Communications.

Diversification Opportunities for Luckin Coffee and Gamma Communications

-0.7

Correlation Coefficient

Luckin Coffee  Gamma Communications

Excellent diversification

The 3 months correlation between Luckin and Gamma is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and Gamma Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamma Communications plc 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 Gamma Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamma Communications plc has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and Gamma Communications go up and down completely randomly.

Pair Corralation between Luckin Coffee and Gamma Communications

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 1.8 times more return on investment than Gamma Communications. However, Luckin Coffee is 1.8 times more volatile than Gamma Communications plc. It trades about 0.16 of its potential returns per unit of risk. Gamma Communications plc is currently generating about -0.17 per unit of risk. If you would invest  2,280  in Luckin Coffee on December 30, 2024 and sell it today you would earn a total of  840.00  from holding Luckin Coffee or generate 36.84% return on investment over 90 days.

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

Luckin Coffee  vs.  Gamma Communications plc

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.

Gamma Communications plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gamma Communications plc 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 Gamma Communications

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

The idea behind Luckin Coffee and Gamma Communications plc 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.

Check out your portfolio center.

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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.