Correlation Between Best Buy and Monster Beverage

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

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

Diversification Opportunities for Best Buy and Monster Beverage

-0.55

Correlation Coefficient

Best Buy  Monster Beverage

Excellent diversification

The 3 months correlation between Best and Monster is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Monster Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage and Best Buy 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 Best Buy Co 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 has no effect on the direction of Best Buy i.e., Best Buy and Monster Beverage go up and down completely randomly.

Pair Corralation between Best Buy and Monster Beverage

Assuming the 90 days trading horizon Best Buy Co is expected to generate 0.9 times more return on investment than Monster Beverage. However, Best Buy Co is 1.11 times less risky than Monster Beverage. It trades about 0.11 of its potential returns per unit of risk. Monster Beverage is currently generating about 0.01 per unit of risk. If you would invest  50,700  in Best Buy Co on September 22, 2024 and sell it today you would earn a total of  1,924  from holding Best Buy Co or generate 3.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Best Buy Co  vs.  Monster Beverage

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Best Buy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Monster Beverage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Best Buy and Monster Beverage

The main advantage of trading using opposite Best Buy and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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 Best Buy Co and Monster Beverage 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.