Correlation Between SOUTHWEST AIRLINES and Monster Beverage
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and Monster Beverage Corp, you can compare the effects of market volatilities on SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and Monster Beverage.
Diversification Opportunities for SOUTHWEST AIRLINES and Monster Beverage
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between SOUTHWEST and Monster is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Monster Beverage go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and Monster Beverage
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to under-perform the Monster Beverage. But the stock apears to be less risky and, when comparing its historical volatility, SOUTHWEST AIRLINES is 1.38 times less risky than Monster Beverage. The stock trades about -0.22 of its potential returns per unit of risk. The Monster Beverage Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 4,600 in Monster Beverage Corp on December 5, 2024 and sell it today you would earn a total of 569.00 from holding Monster Beverage Corp or generate 12.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. Monster Beverage Corp
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| Monster Beverage Corp |
SOUTHWEST AIRLINES and Monster Beverage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and Monster Beverage
The main advantage of trading using opposite SOUTHWEST AIRLINES and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES 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.| SOUTHWEST AIRLINES vs. NAKED WINES PLC | SOUTHWEST AIRLINES vs. AEON METALS LTD | SOUTHWEST AIRLINES vs. Mitsui Chemicals | SOUTHWEST AIRLINES vs. LI METAL P |
| Monster Beverage vs. CN DATANG C | Monster Beverage vs. Collins Foods Limited | Monster Beverage vs. Nomad Foods | Monster Beverage vs. NTT DATA |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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