Correlation Between Monster Beverage and New China
Can any of the company-specific risk be diversified away by investing in both Monster Beverage and New China 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 New China 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 New China Life, you can compare the effects of market volatilities on Monster Beverage and New China 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 New China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and New China.
Diversification Opportunities for Monster Beverage and New China
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Monster and New is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life 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 New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Monster Beverage i.e., Monster Beverage and New China go up and down completely randomly.
Pair Corralation between Monster Beverage and New China
Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.96 times less return on investment than New China. But when comparing it to its historical volatility, Monster Beverage Corp is 2.45 times less risky than New China. It trades about 0.17 of its potential returns per unit of risk. New China Life is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 249.00 in New China Life on August 31, 2024 and sell it today you would earn a total of 35.00 from holding New China Life or generate 14.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Monster Beverage Corp vs. New China Life
Performance |
| Timeline |
| Monster Beverage Corp |
| New China Life |
Monster Beverage and New China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Monster Beverage and New China
The main advantage of trading using opposite Monster Beverage and New China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, New China 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 New China will offset losses from the drop in New China's long position.| Monster Beverage vs. Tianjin Capital Environmental | Monster Beverage vs. Perma Fix Environmental Services | Monster Beverage vs. Warner Music Group | Monster Beverage vs. Zoom Video Communications |
| New China vs. GRIFFIN MINING LTD | New China vs. BORR DRILLING NEW | New China vs. PLAYWAY SA ZY 10 | New China vs. Madison Square Garden |
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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