Correlation Between National Beverage and Monster Beverage

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

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

Diversification Opportunities for National Beverage and Monster Beverage

0.88

Correlation Coefficient

National Beverage  Monster Beverage

Very poor diversification

The 3 months correlation between National and Monster is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Monster Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage Corp and National Beverage 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 National Beverage Corp are associated (or correlated) with Monster Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monster Beverage Corp has no effect on the direction of National Beverage i.e., National Beverage and Monster Beverage go up and down completely randomly.

Pair Corralation between National Beverage and Monster Beverage

Assuming the 90 days horizon National Beverage Corp is expected to under-perform the Monster Beverage. In addition to that, National Beverage is 1.3 times more volatile than Monster Beverage Corp. It trades about -0.22 of its total potential returns per unit of risk. Monster Beverage Corp is currently generating about -0.18 per unit of volatility. If you would invest  5,232  in Monster Beverage Corp on September 27, 2024 and sell it today you would lose (256.00) from holding Monster Beverage Corp or give up 4.89% of portfolio value over 90 days.

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

National Beverage Corp  vs.  Monster Beverage Corp

National Beverage Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, National Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Monster Beverage Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Beverage and Monster Beverage

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

The idea behind National Beverage Corp and Monster Beverage Corp 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.