Correlation Between Travelers Companies and Monster Beverage

Can any of the company-specific risk be diversified away by investing in both Travelers Companies and Monster Beverage 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 Travelers Companies and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Travelers Companies and Monster Beverage Corp, you can compare the effects of market volatilities on Travelers Companies and Monster Beverage 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 Travelers Companies with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travelers Companies and Monster Beverage.

Diversification Opportunities for Travelers Companies and Monster Beverage

0.7

Correlation Coefficient

Travelers Companies  Monster Beverage

Poor diversification

The 3 months correlation between Travelers and Monster is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and Monster Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage Corp and Travelers Companies 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 The Travelers Companies are associated (or correlated) with Monster Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monster Beverage Corp has no effect on the direction of Travelers Companies i.e., Travelers Companies and Monster Beverage go up and down completely randomly.

Pair Corralation between Travelers Companies and Monster Beverage

Assuming the 90 days trading horizon The Travelers Companies is expected to generate 1.81 times more return on investment than Monster Beverage. However, Travelers Companies is 1.81 times more volatile than Monster Beverage Corp. It trades about 0.08 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.05 per unit of risk. If you would invest  463,517  in The Travelers Companies on September 27, 2024 and sell it today you would earn a total of  61,732  from holding The Travelers Companies or generate 13.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

The Travelers Companies  vs.  Monster Beverage Corp

The Travelers Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Monster Beverage Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Travelers Companies and Monster Beverage

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

The idea behind The Travelers Companies and Monster Beverage Corp 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 Global Correlations module to find global opportunities by holding instruments from different markets.