Correlation Between Luckin Coffee and Automatic Data

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

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

Diversification Opportunities for Luckin Coffee and Automatic Data

-0.22

Correlation Coefficient

Luckin Coffee  Automatic Data

Very good diversification

The 3 months correlation between Luckin and Automatic is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and Automatic Data go up and down completely randomly.

Pair Corralation between Luckin Coffee and Automatic Data

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 1.8 times less return on investment than Automatic Data. In addition to that, Luckin Coffee is 3.33 times more volatile than Automatic Data Processing. It trades about 0.01 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.08 per unit of volatility. If you would invest  19,721  in Automatic Data Processing on September 30, 2024 and sell it today you would earn a total of  8,619  from holding Automatic Data Processing or generate 43.7% return on investment over 90 days.

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

Luckin Coffee  vs.  Automatic Data Processing

Luckin Coffee

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Luckin Coffee is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Automatic Data Processing

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luckin Coffee and Automatic Data

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

The idea behind Luckin Coffee and Automatic Data Processing 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.