Correlation Between Monster Beverage and Arrow Electronics

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

Diversification Opportunities for Monster Beverage and Arrow Electronics

-0.48

Correlation Coefficient

Monster Beverage  Arrow Electronics

Very good diversification

The 3 months correlation between Monster and Arrow is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics 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 Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of Monster Beverage i.e., Monster Beverage and Arrow Electronics go up and down completely randomly.

Pair Corralation between Monster Beverage and Arrow Electronics

Given the investment horizon of 90 days Monster Beverage is expected to generate 2.45 times less return on investment than Arrow Electronics. But when comparing it to its historical volatility, Monster Beverage Corp is 1.17 times less risky than Arrow Electronics. It trades about 0.01 of its potential returns per unit of risk. Arrow Electronics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,393  in Arrow Electronics on September 13, 2024 and sell it today you would earn a total of  1,809  from holding Arrow Electronics or generate 17.41% return on investment over 90 days.

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

Monster Beverage Corp  vs.  Arrow Electronics

Monster Beverage Corp

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Arrow Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arrow Electronics is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Monster Beverage and Arrow Electronics

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

The idea behind Monster Beverage Corp and Arrow Electronics 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.