Correlation Between BJs Restaurants and Luckin Coffee

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

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

Diversification Opportunities for BJs Restaurants and Luckin Coffee

-0.34

Correlation Coefficient

BJs Restaurants  Luckin Coffee

Very good diversification

The 3 months correlation between BJs and Luckin is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants i.e., BJs Restaurants and Luckin Coffee go up and down completely randomly.

Pair Corralation between BJs Restaurants and Luckin Coffee

Assuming the 90 days trading horizon BJs Restaurants is expected to generate 12.76 times less return on investment than Luckin Coffee. But when comparing it to its historical volatility, BJs Restaurants is 1.51 times less risky than Luckin Coffee. It trades about 0.02 of its potential returns per unit of risk. Luckin Coffee is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,280  in Luckin Coffee on December 30, 2024 and sell it today you would earn a total of  840.00  from holding Luckin Coffee or generate 36.84% return on investment over 90 days.

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

BJs Restaurants  vs.  Luckin Coffee

BJs Restaurants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Luckin Coffee

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Luckin Coffee are ranked lower than 12 (%) 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.

Pair Trading with BJs Restaurants and Luckin Coffee

The main advantage of trading using opposite BJs Restaurants and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Restaurants 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 BJs Restaurants 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.