Correlation Between Monster Beverage and CenterPoint Energy

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

Diversification Opportunities for Monster Beverage and CenterPoint Energy

0.26

Correlation Coefficient

Monster Beverage  CenterPoint Energy

Modest diversification

The 3 months correlation between Monster and CenterPoint is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy 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 CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of Monster Beverage i.e., Monster Beverage and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Monster Beverage and CenterPoint Energy

Given the investment horizon of 90 days Monster Beverage is expected to generate 27.24 times less return on investment than CenterPoint Energy. In addition to that, Monster Beverage is 1.22 times more volatile than CenterPoint Energy. It trades about 0.0 of its total potential returns per unit of risk. CenterPoint Energy is currently generating about 0.15 per unit of volatility. If you would invest  2,875  in CenterPoint Energy on September 26, 2024 and sell it today you would earn a total of  335.00  from holding CenterPoint Energy or generate 11.65% return on investment over 90 days.

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

Monster Beverage Corp  vs.  CenterPoint Energy

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.

CenterPoint Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, CenterPoint Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monster Beverage and CenterPoint Energy

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

The idea behind Monster Beverage Corp and CenterPoint Energy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.