Correlation Between Luckin Coffee and AdCapital

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

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

Diversification Opportunities for Luckin Coffee and AdCapital

0.2

Correlation Coefficient

Luckin Coffee  AdCapital

Modest diversification

The 3 months correlation between Luckin and AdCapital is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and AdCapital AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdCapital AG 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 AdCapital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdCapital AG has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and AdCapital go up and down completely randomly.

Pair Corralation between Luckin Coffee and AdCapital

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 1.39 times more return on investment than AdCapital. However, Luckin Coffee is 1.39 times more volatile than AdCapital AG. It trades about 0.2 of its potential returns per unit of risk. AdCapital AG is currently generating about -0.2 per unit of risk. If you would invest  2,240  in Luckin Coffee on October 5, 2024 and sell it today you would earn a total of  340.00  from holding Luckin Coffee or generate 15.18% return on investment over 90 days.

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

Luckin Coffee  vs.  AdCapital AG

Luckin Coffee

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Luckin Coffee has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Luckin Coffee may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AdCapital AG

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Luckin Coffee and AdCapital

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

The idea behind Luckin Coffee and AdCapital AG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.