Correlation Between Darden Restaurants and Luckin Coffee
Can any of the company-specific risk be diversified away by investing in both Darden 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 Darden 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 Darden Restaurants and Luckin Coffee, you can compare the effects of market volatilities on Darden 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 Darden Restaurants with a short position of Luckin Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and Luckin Coffee.
Diversification Opportunities for Darden Restaurants and Luckin Coffee
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Darden and Luckin is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Darden 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 Darden 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 Darden Restaurants i.e., Darden Restaurants and Luckin Coffee go up and down completely randomly.
Pair Corralation between Darden Restaurants and Luckin Coffee
Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.62 times less return on investment than Luckin Coffee. But when comparing it to its historical volatility, Darden Restaurants is 3.47 times less risky than Luckin Coffee. It trades about 0.04 of its potential returns per unit of risk. Luckin Coffee is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,071 in Luckin Coffee on August 26, 2024 and sell it today you would lose (51.00) from holding Luckin Coffee or give up 2.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Darden Restaurants vs. Luckin Coffee
Performance |
| Timeline |
| Darden Restaurants |
| Luckin Coffee |
Darden Restaurants and Luckin Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Darden Restaurants and Luckin Coffee
The main advantage of trading using opposite Darden Restaurants and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden 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.| Darden Restaurants vs. Big 5 Sporting | Darden Restaurants vs. Fukuyama Transporting Co | Darden Restaurants vs. SINGAPORE AIRLINES | Darden Restaurants vs. Gaztransport Technigaz SA |
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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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