Correlation Between Penn National and Luckin Coffee

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

By analyzing existing cross correlation between Penn National Gaming and Luckin Coffee, you can compare the effects of market volatilities on Penn National and Luckin Coffee 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 Penn National with a short position of Luckin Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penn National and Luckin Coffee.

Diversification Opportunities for Penn National and Luckin Coffee

-0.29

Correlation Coefficient

Penn National  Luckin Coffee

Very good diversification

The 3 months correlation between Penn and Luckin is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Penn National 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 Penn National Gaming are associated (or correlated) with Luckin Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luckin Coffee has no effect on the direction of Penn National i.e., Penn National and Luckin Coffee go up and down completely randomly.

Pair Corralation between Penn National and Luckin Coffee

Assuming the 90 days horizon Penn National Gaming is expected to under-perform the Luckin Coffee. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.27 times less risky than Luckin Coffee. The stock trades about -0.01 of its potential returns per unit of risk. The Luckin Coffee is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,163  in Luckin Coffee on October 11, 2024 and sell it today you would earn a total of  317.00  from holding Luckin Coffee or generate 14.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Penn National Gaming  vs.  Luckin Coffee

Penn National Gaming

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Penn National reported solid returns over the last few months and may actually be approaching a breakup point.

Luckin Coffee

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 4 (%) 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.

Pair Trading with Penn National and Luckin Coffee

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

The idea behind Penn National Gaming and Luckin Coffee 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.