Correlation Between Microsoft and Monster Beverage
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Monster Beverage Corp, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Monster Beverage.
Diversification Opportunities for Microsoft and Monster Beverage
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Monster is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Monster Beverage go up and down completely randomly.
Pair Corralation between Microsoft and Monster Beverage
Assuming the 90 days trading horizon Microsoft is expected to generate 0.87 times more return on investment than Monster Beverage. However, Microsoft is 1.14 times less risky than Monster Beverage. It trades about 0.06 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.01 per unit of risk. If you would invest 29,801 in Microsoft on August 31, 2024 and sell it today you would earn a total of 10,044 from holding Microsoft or generate 33.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Monster Beverage Corp
Performance |
| Timeline |
| Microsoft |
| Monster Beverage Corp |
Microsoft and Monster Beverage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Monster Beverage
The main advantage of trading using opposite Microsoft and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Geely Automobile Holdings | Microsoft vs. CarsalesCom | Microsoft vs. INTER CARS SA | Microsoft vs. Motorcar Parts of |
| 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 |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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