Correlation Between Monster Beverage and GM
Can any of the company-specific risk be diversified away by investing in both Monster Beverage and GM 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 GM 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 General Motors, you can compare the effects of market volatilities on Monster Beverage and GM 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 GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and GM.
Diversification Opportunities for Monster Beverage and GM
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Monster and GM is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Monster Beverage i.e., Monster Beverage and GM go up and down completely randomly.
Pair Corralation between Monster Beverage and GM
Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.93 times less return on investment than GM. But when comparing it to its historical volatility, Monster Beverage Corp is 2.83 times less risky than GM. It trades about 0.29 of its potential returns per unit of risk. General Motors is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 102,000 in General Motors on September 1, 2024 and sell it today you would earn a total of 12,200 from holding General Motors or generate 11.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Monster Beverage Corp vs. General Motors
Performance |
| Timeline |
| Monster Beverage Corp |
| General Motors |
Monster Beverage and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Monster Beverage and GM
The main advantage of trading using opposite Monster Beverage and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.| Monster Beverage vs. The Select Sector | Monster Beverage vs. Promotora y Operadora | Monster Beverage vs. SPDR Series Trust | Monster Beverage vs. iShares Trust |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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