Correlation Between Bread Financial and Monster Beverage

Can any of the company-specific risk be diversified away by investing in both Bread Financial 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 Bread Financial and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bread Financial Holdings and Monster Beverage, you can compare the effects of market volatilities on Bread Financial 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 Bread Financial with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bread Financial and Monster Beverage.

Diversification Opportunities for Bread Financial and Monster Beverage

0.83

Correlation Coefficient

Bread Financial  Monster Beverage

Very poor diversification

The 3 months correlation between Bread and Monster is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Monster Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage and Bread Financial 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 Bread Financial Holdings 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 has no effect on the direction of Bread Financial i.e., Bread Financial and Monster Beverage go up and down completely randomly.

Pair Corralation between Bread Financial and Monster Beverage

Assuming the 90 days trading horizon Bread Financial Holdings is expected to generate 1.07 times more return on investment than Monster Beverage. However, Bread Financial is 1.07 times more volatile than Monster Beverage. It trades about 0.36 of its potential returns per unit of risk. Monster Beverage is currently generating about -0.05 per unit of risk. If you would invest  8,336  in Bread Financial Holdings on September 24, 2024 and sell it today you would earn a total of  1,284  from holding Bread Financial Holdings or generate 15.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Bread Financial Holdings  vs.  Monster Beverage

Bread Financial Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Monster Beverage

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bread Financial and Monster Beverage

The main advantage of trading using opposite Bread Financial and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial 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.

The idea behind Bread Financial Holdings and Monster Beverage 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.