Correlation Between HDFC Bank and Monster Beverage

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

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

Diversification Opportunities for HDFC Bank and Monster Beverage

0.7

Correlation Coefficient

HDFC Bank  Monster Beverage

Poor diversification

The 3 months correlation between HDFC and Monster is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Monster Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage and HDFC Bank 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 HDFC Bank Limited 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 HDFC Bank i.e., HDFC Bank and Monster Beverage go up and down completely randomly.

Pair Corralation between HDFC Bank and Monster Beverage

Assuming the 90 days trading horizon HDFC Bank is expected to generate 1.25 times less return on investment than Monster Beverage. In addition to that, HDFC Bank is 1.67 times more volatile than Monster Beverage. It trades about 0.1 of its total potential returns per unit of risk. Monster Beverage is currently generating about 0.2 per unit of volatility. If you would invest  3,411  in Monster Beverage on September 4, 2024 and sell it today you would earn a total of  787.00  from holding Monster Beverage or generate 23.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

HDFC Bank Limited  vs.  Monster Beverage

HDFC Bank Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Monster Beverage

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Monster Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Bank and Monster Beverage

The main advantage of trading using opposite HDFC Bank and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank 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 HDFC Bank Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.