Correlation Between Charter Communications and Monster Beverage
Can any of the company-specific risk be diversified away by investing in both Charter Communications 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 Charter Communications and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Charter Communications and Monster Beverage, you can compare the effects of market volatilities on Charter Communications 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 Charter Communications with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charter Communications and Monster Beverage.
Diversification Opportunities for Charter Communications and Monster Beverage
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Charter and Monster is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Monster Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage and Charter Communications 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 Charter Communications 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 has no effect on the direction of Charter Communications i.e., Charter Communications and Monster Beverage go up and down completely randomly.
Pair Corralation between Charter Communications and Monster Beverage
Assuming the 90 days trading horizon Charter Communications is expected to generate 1.4 times more return on investment than Monster Beverage. However, Charter Communications is 1.4 times more volatile than Monster Beverage. It trades about 0.11 of its potential returns per unit of risk. Monster Beverage is currently generating about 0.03 per unit of risk. If you would invest 2,418 in Charter Communications on August 27, 2024 and sell it today you would earn a total of 1,330 from holding Charter Communications or generate 55.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Charter Communications vs. Monster Beverage
Performance |
| Timeline |
| Charter Communications |
| Monster Beverage |
Charter Communications and Monster Beverage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Charter Communications and Monster Beverage
The main advantage of trading using opposite Charter Communications and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications and Monster Beverage 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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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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