Correlation Between Luckin Coffee and Merit Medical

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

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

Diversification Opportunities for Luckin Coffee and Merit Medical

-0.23

Correlation Coefficient

Luckin Coffee  Merit Medical

Very good diversification

The 3 months correlation between Luckin and Merit is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and Merit Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merit Medical Systems 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 Merit Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merit Medical Systems has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and Merit Medical go up and down completely randomly.

Pair Corralation between Luckin Coffee and Merit Medical

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 1.19 times less return on investment than Merit Medical. In addition to that, Luckin Coffee is 2.49 times more volatile than Merit Medical Systems. It trades about 0.02 of its total potential returns per unit of risk. Merit Medical Systems is currently generating about 0.05 per unit of volatility. If you would invest  6,650  in Merit Medical Systems on October 26, 2024 and sell it today you would earn a total of  3,100  from holding Merit Medical Systems or generate 46.62% 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.  Merit Medical Systems

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 fragile basic indicators, Luckin Coffee unveiled solid returns over the last few months and may actually be approaching a breakup point.

Merit Medical Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Merit Medical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Luckin Coffee and Merit Medical

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

The idea behind Luckin Coffee and Merit Medical Systems 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.