Correlation Between Monster Beverage and Jacobs Solutions

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

Diversification Opportunities for Monster Beverage and Jacobs Solutions

0.61

Correlation Coefficient

Monster Beverage  Jacobs Solutions

Poor diversification

The 3 months correlation between Monster and Jacobs is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Jacobs Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jacobs Solutions 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 Jacobs Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jacobs Solutions has no effect on the direction of Monster Beverage i.e., Monster Beverage and Jacobs Solutions go up and down completely randomly.

Pair Corralation between Monster Beverage and Jacobs Solutions

Given the investment horizon of 90 days Monster Beverage Corp is expected to generate 1.01 times more return on investment than Jacobs Solutions. However, Monster Beverage is 1.01 times more volatile than Jacobs Solutions. It trades about -0.19 of its potential returns per unit of risk. Jacobs Solutions is currently generating about -0.23 per unit of risk. If you would invest  5,638  in Monster Beverage Corp on September 14, 2024 and sell it today you would lose (428.00) from holding Monster Beverage Corp or give up 7.59% of portfolio value over 90 days.

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

Monster Beverage Corp  vs.  Jacobs Solutions

Monster Beverage Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 2 (%) 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.

Jacobs Solutions

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jacobs Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, Jacobs Solutions revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and Jacobs Solutions

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

The idea behind Monster Beverage Corp and Jacobs Solutions 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.