Correlation Between Monster Beverage and Allegiant Travel

Can any of the company-specific risk be diversified away by investing in both Monster Beverage and Allegiant Travel 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 Allegiant Travel 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 Allegiant Travel, you can compare the effects of market volatilities on Monster Beverage and Allegiant Travel 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 Allegiant Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and Allegiant Travel.

Diversification Opportunities for Monster Beverage and Allegiant Travel

0.47

Correlation Coefficient

Monster Beverage  Allegiant Travel

Very weak diversification

The 3 months correlation between Monster and Allegiant is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel 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 Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of Monster Beverage i.e., Monster Beverage and Allegiant Travel go up and down completely randomly.

Pair Corralation between Monster Beverage and Allegiant Travel

Given the investment horizon of 90 days Monster Beverage Corp is expected to under-perform the Allegiant Travel. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 2.19 times less risky than Allegiant Travel. The stock trades about -0.01 of its potential returns per unit of risk. The Allegiant Travel is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  4,851  in Allegiant Travel on September 24, 2024 and sell it today you would earn a total of  3,596  from holding Allegiant Travel or generate 74.13% return on investment over 90 days.

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

Monster Beverage Corp  vs.  Allegiant Travel

Monster Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monster Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Allegiant Travel

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allegiant Travel are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Allegiant Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and Allegiant Travel

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

The idea behind Monster Beverage Corp and Allegiant Travel 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.