Correlation Between Luckin Coffee and CGN Power

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

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

Diversification Opportunities for Luckin Coffee and CGN Power

-0.04

Correlation Coefficient

Luckin Coffee  CGN Power

Good diversification

The 3 months correlation between Luckin and CGN is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and CGN Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGN Power 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 CGN Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGN Power has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and CGN Power go up and down completely randomly.

Pair Corralation between Luckin Coffee and CGN Power

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 122.2 times less return on investment than CGN Power. But when comparing it to its historical volatility, Luckin Coffee is 3.42 times less risky than CGN Power. It trades about 0.0 of its potential returns per unit of risk. CGN Power Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  14.00  in CGN Power Co on October 21, 2024 and sell it today you would earn a total of  14.00  from holding CGN Power Co or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.66%
Values	Daily Returns

Luckin Coffee  vs.  CGN Power Co

Luckin Coffee

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 7 (%) 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.

CGN Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CGN Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CGN Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Luckin Coffee and CGN Power

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

The idea behind Luckin Coffee and CGN Power Co 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.