Correlation Between Applied Materials and Monster Beverage

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

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

Diversification Opportunities for Applied Materials and Monster Beverage

-0.47

Correlation Coefficient

Applied Materials  Monster Beverage

Very good diversification

The 3 months correlation between Applied and Monster is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials 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 Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Monster Beverage go up and down completely randomly.

Pair Corralation between Applied Materials and Monster Beverage

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the Monster Beverage. In addition to that, Applied Materials is 1.69 times more volatile than Monster Beverage Corp. It trades about -0.04 of its total potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.04 per unit of volatility. If you would invest  101,500  in Monster Beverage Corp on September 19, 2024 and sell it today you would earn a total of  3,130  from holding Monster Beverage Corp or generate 3.08% return on investment over 90 days.

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

Applied Materials  vs.  Monster Beverage Corp

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Monster Beverage Corp

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials and Monster Beverage

The main advantage of trading using opposite Applied Materials and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.