Correlation Between Luckin Coffee and GMO Internet

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

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

Diversification Opportunities for Luckin Coffee and GMO Internet

0.08

Correlation Coefficient

Luckin Coffee  GMO Internet

Significant diversification

The 3 months correlation between Luckin and GMO is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet 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 GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and GMO Internet go up and down completely randomly.

Pair Corralation between Luckin Coffee and GMO Internet

Assuming the 90 days trading horizon Luckin Coffee is expected to under-perform the GMO Internet. But the stock apears to be less risky and, when comparing its historical volatility, Luckin Coffee is 1.92 times less risky than GMO Internet. The stock trades about 0.0 of its potential returns per unit of risk. The GMO Internet is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  365.00  in GMO Internet on October 6, 2024 and sell it today you would earn a total of  1,255  from holding GMO Internet or generate 343.84% return on investment over 90 days.

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

Luckin Coffee  vs.  GMO Internet

Luckin Coffee

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Luckin Coffee may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Luckin Coffee and GMO Internet

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

The idea behind Luckin Coffee and GMO Internet 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 CEOs Directory module to screen CEOs from public companies around the world.