Correlation Between Baidu and Monster Beverage

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

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

Diversification Opportunities for Baidu and Monster Beverage

-0.58

Correlation Coefficient

Baidu  Monster Beverage

Excellent diversification

The 3 months correlation between Baidu and Monster is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc 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 Baidu 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 Baidu Inc 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 Baidu i.e., Baidu and Monster Beverage go up and down completely randomly.

Pair Corralation between Baidu and Monster Beverage

Assuming the 90 days trading horizon Baidu Inc is expected to under-perform the Monster Beverage. In addition to that, Baidu is 1.55 times more volatile than Monster Beverage Corp. It trades about -0.01 of its total potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.01 per unit of volatility. If you would invest  104,550  in Monster Beverage Corp on September 25, 2024 and sell it today you would lose (350.00) from holding Monster Beverage Corp or give up 0.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.76%
Values	Daily Returns

Baidu Inc  vs.  Monster Beverage Corp

Baidu Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baidu Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Baidu is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Monster Beverage Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 2 (%) 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 Baidu and Monster Beverage

The main advantage of trading using opposite Baidu and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baidu 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 Baidu Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.