Correlation Between Constellation Software and Luckin Coffee

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

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

Diversification Opportunities for Constellation Software and Luckin Coffee

-0.28

Correlation Coefficient

Constellation Software  Luckin Coffee

Very good diversification

The 3 months correlation between Constellation and Luckin is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Constellation Software 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 Constellation Software 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 Constellation Software i.e., Constellation Software and Luckin Coffee go up and down completely randomly.

Pair Corralation between Constellation Software and Luckin Coffee

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.3 times more return on investment than Luckin Coffee. However, Constellation Software is 3.31 times less risky than Luckin Coffee. It trades about 0.1 of its potential returns per unit of risk. Luckin Coffee is currently generating about 0.03 per unit of risk. If you would invest  154,034  in Constellation Software on October 13, 2024 and sell it today you would earn a total of  136,966  from holding Constellation Software or generate 88.92% return on investment over 90 days.

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

Constellation Software  vs.  Luckin Coffee

Constellation Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 uncertain basic indicators, Luckin Coffee may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Constellation Software and Luckin Coffee

The main advantage of trading using opposite Constellation Software and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Software 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 Constellation Software 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..