Correlation Between Monster Beverage and Volkswagen
Can any of the company-specific risk be diversified away by investing in both Monster Beverage and Volkswagen 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 Volkswagen 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 Volkswagen AG, you can compare the effects of market volatilities on Monster Beverage and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and Volkswagen.
Diversification Opportunities for Monster Beverage and Volkswagen
-0.85 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Monster and Volkswagen is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Monster Beverage i.e., Monster Beverage and Volkswagen go up and down completely randomly.
Pair Corralation between Monster Beverage and Volkswagen
Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 1.05 times more return on investment than Volkswagen. However, Monster Beverage is 1.05 times more volatile than Volkswagen AG. It trades about 0.04 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.1 per unit of risk. If you would invest 4,650 in Monster Beverage Corp on September 29, 2024 and sell it today you would earn a total of 384.00 from holding Monster Beverage Corp or generate 8.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Monster Beverage Corp vs. Volkswagen AG
Performance |
| Timeline |
| Monster Beverage Corp |
| Volkswagen AG |
Monster Beverage and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Monster Beverage and Volkswagen
The main advantage of trading using opposite Monster Beverage and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, Volkswagen 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 Volkswagen will offset losses from the drop in Volkswagen's long position.The idea behind Monster Beverage Corp and Volkswagen AG 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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