Correlation Between Cumberland Pharmaceuticals and Monster Beverage

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

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

Diversification Opportunities for Cumberland Pharmaceuticals and Monster Beverage

-0.43

Correlation Coefficient

Cumberland Pharmaceuticals  Monster Beverage

Very good diversification

The 3 months correlation between Cumberland and Monster is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Monster Beverage go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and Monster Beverage

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 10.34 times more return on investment than Monster Beverage. However, Cumberland Pharmaceuticals is 10.34 times more volatile than Monster Beverage Corp. It trades about 0.26 of its potential returns per unit of risk. Monster Beverage Corp is currently generating about 0.29 per unit of risk. If you would invest  226.00  in Cumberland Pharmaceuticals on December 2, 2024 and sell it today you would earn a total of  260.00  from holding Cumberland Pharmaceuticals or generate 115.04% return on investment over 90 days.

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

Cumberland Pharmaceuticals  vs.  Monster Beverage Corp

Cumberland Pharmaceuticals

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cumberland Pharmaceuticals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Cumberland Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Monster Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monster Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monster Beverage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cumberland Pharmaceuticals and Monster Beverage

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