Correlation Between Monster Beverage and Occidental Petroleum

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

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

Diversification Opportunities for Monster Beverage and Occidental Petroleum

0.13

Correlation Coefficient

Monster Beverage  Occidental Petroleum

Average diversification

The 3 months correlation between Monster and Occidental is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and Monster 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 Monster Beverage are associated (or correlated) with Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Monster Beverage i.e., Monster Beverage and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Monster Beverage and Occidental Petroleum

Assuming the 90 days trading horizon Monster Beverage is expected to generate 0.97 times more return on investment than Occidental Petroleum. However, Monster Beverage is 1.04 times less risky than Occidental Petroleum. It trades about 0.08 of its potential returns per unit of risk. Occidental Petroleum is currently generating about 0.01 per unit of risk. If you would invest  3,624  in Monster Beverage on September 23, 2024 and sell it today you would earn a total of  288.00  from holding Monster Beverage or generate 7.95% return on investment over 90 days.

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

Monster Beverage  vs.  Occidental Petroleum

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.

Occidental Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Monster Beverage and Occidental Petroleum

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

The idea behind Monster Beverage and Occidental Petroleum 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 Transaction History module to view history of all your transactions and understand their impact on performance.