Correlation Between Luckin Coffee and INDOFOOD AGRI

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

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

Diversification Opportunities for Luckin Coffee and INDOFOOD AGRI

0.39

Correlation Coefficient

Luckin Coffee  INDOFOOD AGRI

Weak diversification

The 3 months correlation between Luckin and INDOFOOD is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Luckin Coffee and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES 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 INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of Luckin Coffee i.e., Luckin Coffee and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Luckin Coffee and INDOFOOD AGRI

Assuming the 90 days trading horizon Luckin Coffee is expected to generate 2.0 times more return on investment than INDOFOOD AGRI. However, Luckin Coffee is 2.0 times more volatile than INDOFOOD AGRI RES. It trades about 0.07 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about 0.04 per unit of risk. If you would invest  1,770  in Luckin Coffee on August 31, 2024 and sell it today you would earn a total of  270.00  from holding Luckin Coffee or generate 15.25% 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.  INDOFOOD AGRI RES

Luckin Coffee

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 5 (%) 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.

INDOFOOD AGRI RES

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in INDOFOOD AGRI RES are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Luckin Coffee and INDOFOOD AGRI

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

The idea behind Luckin Coffee and INDOFOOD AGRI RES 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 Transaction History module to view history of all your transactions and understand their impact on performance.