Correlation Between Warner Music and Luckin Coffee
Can any of the company-specific risk be diversified away by investing in both Warner Music 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 Warner Music and Luckin Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Warner Music Group and Luckin Coffee, you can compare the effects of market volatilities on Warner Music 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 Warner Music with a short position of Luckin Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Luckin Coffee.
Diversification Opportunities for Warner Music and Luckin Coffee
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Warner and Luckin is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Luckin Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luckin Coffee and Warner Music 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 Warner Music Group 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 Warner Music i.e., Warner Music and Luckin Coffee go up and down completely randomly.
Pair Corralation between Warner Music and Luckin Coffee
Assuming the 90 days horizon Warner Music is expected to generate 1.45 times less return on investment than Luckin Coffee. But when comparing it to its historical volatility, Warner Music Group is 1.4 times less risky than Luckin Coffee. It trades about 0.13 of its potential returns per unit of risk. Luckin Coffee is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,420 in Luckin Coffee on December 12, 2024 and sell it today you would earn a total of 380.00 from holding Luckin Coffee or generate 15.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Luckin Coffee
Performance |
| Timeline |
| Warner Music Group |
| Luckin Coffee |
Warner Music and Luckin Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Luckin Coffee
The main advantage of trading using opposite Warner Music and Luckin Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music 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.| Warner Music vs. Costco Wholesale Corp | ||
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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 Stocks Directory module to find actively traded stocks across global markets.
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