Correlation Between Monster Beverage and Legal General

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

Diversification Opportunities for Monster Beverage and Legal General

-0.42

Correlation Coefficient

Monster Beverage  Legal General

Very good diversification

The 3 months correlation between Monster and Legal is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Legal General Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General Group 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 Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General Group has no effect on the direction of Monster Beverage i.e., Monster Beverage and Legal General go up and down completely randomly.

Pair Corralation between Monster Beverage and Legal General

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the Legal General. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 1.04 times less risky than Legal General. The stock trades about -0.09 of its potential returns per unit of risk. The Legal General Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  22,650  in Legal General Group on October 22, 2024 and sell it today you would earn a total of  710.00  from holding Legal General Group or generate 3.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Monster Beverage Corp  vs.  Legal General Group

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Legal General Group

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Legal General 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 Legal General

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

The idea behind Monster Beverage Corp and Legal General Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.