Correlation Between Warner Music and Monster Beverage
Can any of the company-specific risk be diversified away by investing in both Warner Music 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 Warner Music and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Warner Music Group and Monster Beverage Corp, you can compare the effects of market volatilities on Warner Music 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 Warner Music with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Monster Beverage.
Diversification Opportunities for Warner Music and Monster Beverage
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Warner and Monster is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group 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 Warner Music 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 Warner Music Group 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 Warner Music i.e., Warner Music and Monster Beverage go up and down completely randomly.
Pair Corralation between Warner Music and Monster Beverage
Assuming the 90 days horizon Warner Music is expected to generate 1.48 times less return on investment than Monster Beverage. In addition to that, Warner Music is 1.04 times more volatile than Monster Beverage Corp. It trades about 0.11 of its total potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.17 per unit of volatility. If you would invest 4,856 in Monster Beverage Corp on August 31, 2024 and sell it today you would earn a total of 364.00 from holding Monster Beverage Corp or generate 7.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Monster Beverage Corp
Performance |
| Timeline |
| Warner Music Group |
| Monster Beverage Corp |
Warner Music and Monster Beverage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Monster Beverage
The main advantage of trading using opposite Warner Music and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music 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.| Warner Music vs. Dairy Farm International | Warner Music vs. Daito Trust Construction | Warner Music vs. AUST AGRICULTURAL | Warner Music vs. JAPAN AIRLINES |
| 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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