Correlation Between Monster Beverage and Verizon Communications

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

Diversification Opportunities for Monster Beverage and Verizon Communications

-0.31

Correlation Coefficient

Monster Beverage  Verizon Communications

Very good diversification

The 3 months correlation between Monster and Verizon is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Monster Beverage i.e., Monster Beverage and Verizon Communications go up and down completely randomly.

Pair Corralation between Monster Beverage and Verizon Communications

Assuming the 90 days trading horizon Monster Beverage is expected to generate 2.32 times less return on investment than Verizon Communications. In addition to that, Monster Beverage is 1.71 times more volatile than Verizon Communications. It trades about 0.08 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.31 per unit of volatility. If you would invest  4,110  in Verizon Communications on September 4, 2024 and sell it today you would earn a total of  280.00  from holding Verizon Communications or generate 6.81% return on investment over 90 days.

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

Monster Beverage Corp  vs.  Verizon Communications

Monster Beverage Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monster Beverage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Verizon Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monster Beverage and Verizon Communications

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

The idea behind Monster Beverage Corp and Verizon Communications 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.