Correlation Between Monster Beverage and Automatic Data

Can any of the company-specific risk be diversified away by investing in both Monster Beverage and Automatic Data 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 Automatic Data 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 Automatic Data Processing, you can compare the effects of market volatilities on Monster Beverage and Automatic Data 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 Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and Automatic Data.

Diversification Opportunities for Monster Beverage and Automatic Data

0.66

Correlation Coefficient

Monster Beverage  Automatic Data

Poor diversification

The 3 months correlation between Monster and Automatic is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Monster Beverage i.e., Monster Beverage and Automatic Data go up and down completely randomly.

Pair Corralation between Monster Beverage and Automatic Data

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the Automatic Data. In addition to that, Monster Beverage is 1.28 times more volatile than Automatic Data Processing. It trades about -0.31 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about -0.2 per unit of volatility. If you would invest  29,746  in Automatic Data Processing on October 15, 2024 and sell it today you would lose (900.00) from holding Automatic Data Processing or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Monster Beverage Corp  vs.  Automatic Data Processing

Monster Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monster Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Automatic Data Processing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Automatic Data Processing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Automatic Data is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monster Beverage and Automatic Data

The main advantage of trading using opposite Monster Beverage and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, Automatic Data 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 Automatic Data will offset losses from the drop in Automatic Data's long position.

The idea behind Monster Beverage Corp and Automatic Data Processing 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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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 Anywhere module to track or share privately all of your investments from the convenience of any device.