Correlation Between Costco Wholesale and Monster Beverage

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

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

Diversification Opportunities for Costco Wholesale and Monster Beverage

0.68

Correlation Coefficient

Costco Wholesale  Monster Beverage

Poor diversification

The 3 months correlation between Costco and Monster is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale i.e., Costco Wholesale and Monster Beverage go up and down completely randomly.

Pair Corralation between Costco Wholesale and Monster Beverage

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.74 times less return on investment than Monster Beverage. But when comparing it to its historical volatility, Costco Wholesale is 1.11 times less risky than Monster Beverage. It trades about 0.13 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  91,850  in Monster Beverage Corp on September 2, 2024 and sell it today you would earn a total of  21,650  from holding Monster Beverage Corp or generate 23.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Costco Wholesale  vs.  Monster Beverage Corp

Costco Wholesale

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Costco Wholesale showed solid returns over the last few months and may actually be approaching a breakup point.

Monster Beverage Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Monster Beverage showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Monster Beverage

The main advantage of trading using opposite Costco Wholesale and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale 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 Costco Wholesale 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.