Correlation Between Arca Continental and Monster Beverage

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Can any of the company-specific risk be diversified away by investing in both Arca Continental 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 Arca Continental and Monster Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arca Continental SAB and Monster Beverage Corp, you can compare the effects of market volatilities on Arca Continental 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 Arca Continental with a short position of Monster Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arca Continental and Monster Beverage.

Diversification Opportunities for Arca Continental and Monster Beverage

ArcaMonsterDiversified AwayArcaMonsterDiversified Away100%
-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Arca and Monster is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Arca Continental SAB and Monster Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monster Beverage Corp and Arca Continental 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 Arca Continental SAB 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 Corp has no effect on the direction of Arca Continental i.e., Arca Continental and Monster Beverage go up and down completely randomly.

Pair Corralation between Arca Continental and Monster Beverage

Assuming the 90 days horizon Arca Continental is expected to generate 7.14 times less return on investment than Monster Beverage. But when comparing it to its historical volatility, Arca Continental SAB is 1.0 times less risky than Monster Beverage. It trades about 0.01 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  97,500  in Monster Beverage Corp on September 16, 2024 and sell it today you would earn a total of  8,000  from holding Monster Beverage Corp or generate 8.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Arca Continental SAB  vs.  Monster Beverage Corp

 Performance 
JavaScript chart by amCharts 3.21.15OctNov -50510
JavaScript chart by amCharts 3.21.15AC MNST
       Timeline  
Arca Continental SAB 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Arca Continental SAB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Arca Continental is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec170175180185190
Monster Beverage Corp 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec9501,0001,0501,100

Arca Continental and Monster Beverage Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.19-3.89-2.59-1.280.02171.282.593.915.236.55 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15AC MNST
       Returns  

Pair Trading with Arca Continental and Monster Beverage

The main advantage of trading using opposite Arca Continental and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arca Continental 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 Arca Continental SAB and Monster Beverage Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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