Correlation Between Monster Beverage and Boston Beer

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

Diversification Opportunities for Monster Beverage and Boston Beer

0.9

Correlation Coefficient

Monster Beverage  Boston Beer

Almost no diversification

The 3 months correlation between Monster and Boston is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and The Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer 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 Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of Monster Beverage i.e., Monster Beverage and Boston Beer go up and down completely randomly.

Pair Corralation between Monster Beverage and Boston Beer

Assuming the 90 days trading horizon Monster Beverage is expected to generate 2.05 times less return on investment than Boston Beer. In addition to that, Monster Beverage is 1.07 times more volatile than The Boston Beer. It trades about 0.1 of its total potential returns per unit of risk. The Boston Beer is currently generating about 0.22 per unit of volatility. If you would invest  24,160  in The Boston Beer on September 12, 2024 and sell it today you would earn a total of  5,680  from holding The Boston Beer or generate 23.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Monster Beverage Corp  vs.  The Boston Beer

Monster Beverage Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Boston Beer

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Boston Beer are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Boston Beer reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and Boston Beer

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

The idea behind Monster Beverage Corp and The Boston Beer 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.