Correlation Between Monster Beverage and BP Plc

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

Diversification Opportunities for Monster Beverage and BP Plc

0.87

Correlation Coefficient

Monster Beverage  BP Plc

Very poor diversification

The 3 months correlation between Monster and BP-B is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Monster Beverage i.e., Monster Beverage and BP Plc go up and down completely randomly.

Pair Corralation between Monster Beverage and BP Plc

Assuming the 90 days trading horizon Monster Beverage Corp is expected to generate 2.25 times more return on investment than BP Plc. However, Monster Beverage is 2.25 times more volatile than BP plc. It trades about 0.11 of its potential returns per unit of risk. BP plc is currently generating about 0.13 per unit of risk. If you would invest  5,273  in Monster Beverage Corp on December 30, 2024 and sell it today you would earn a total of  539.00  from holding Monster Beverage Corp or generate 10.22% return on investment over 90 days.

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

Monster Beverage Corp  vs.  BP plc

Monster Beverage Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BP plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BP Plc 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 BP Plc

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

The idea behind Monster Beverage Corp and BP plc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.