Correlation Between Monster Beverage and Select Sector

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

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

Diversification Opportunities for Monster Beverage and Select Sector

0.78

Correlation Coefficient

Monster Beverage  Select Sector

Poor diversification

The 3 months correlation between Monster and Select is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector 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 Corp are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of Monster Beverage i.e., Monster Beverage and Select Sector go up and down completely randomly.

Pair Corralation between Monster Beverage and Select Sector

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 0.84 times more return on investment than Select Sector. However, Monster Beverage Corp is 1.2 times less risky than Select Sector. It trades about 0.08 of its potential returns per unit of risk. The Select Sector is currently generating about 0.04 per unit of risk. If you would invest  100,000  in Monster Beverage Corp on September 12, 2024 and sell it today you would earn a total of  7,700  from holding Monster Beverage Corp or generate 7.7% return on investment over 90 days.

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

Monster Beverage Corp  vs.  The Select Sector

Monster Beverage Corp

Risk-Adjusted Performance

6 of 100

Modest

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

Select Sector

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector 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 Select Sector

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

The idea behind Monster Beverage Corp and The Select Sector 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.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.