Correlation Between Monster Beverage and Cebu Air

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

Diversification Opportunities for Monster Beverage and Cebu Air

-0.67

Correlation Coefficient

Monster Beverage  Cebu Air

Excellent diversification

The 3 months correlation between Monster and Cebu is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Cebu Air ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air ADR 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 Cebu Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cebu Air ADR has no effect on the direction of Monster Beverage i.e., Monster Beverage and Cebu Air go up and down completely randomly.

Pair Corralation between Monster Beverage and Cebu Air

Given the investment horizon of 90 days Monster Beverage Corp is expected to generate 0.91 times more return on investment than Cebu Air. However, Monster Beverage Corp is 1.1 times less risky than Cebu Air. It trades about 0.13 of its potential returns per unit of risk. Cebu Air ADR is currently generating about -0.12 per unit of risk. If you would invest  4,838  in Monster Beverage Corp on September 4, 2024 and sell it today you would earn a total of  660.00  from holding Monster Beverage Corp or generate 13.64% return on investment over 90 days.

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

Monster Beverage Corp  vs.  Cebu Air ADR

Monster Beverage Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Monster Beverage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cebu Air ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Monster Beverage and Cebu Air

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

The idea behind Monster Beverage Corp and Cebu Air ADR 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.