Correlation Between Electronic Arts and Monster Beverage

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

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

Diversification Opportunities for Electronic Arts and Monster Beverage

0.81

Correlation Coefficient

Electronic Arts  Monster Beverage

Very poor diversification

The 3 months correlation between Electronic and Monster is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts 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 Electronic Arts 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 Electronic Arts 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 Electronic Arts i.e., Electronic Arts and Monster Beverage go up and down completely randomly.

Pair Corralation between Electronic Arts and Monster Beverage

Assuming the 90 days trading horizon Electronic Arts is expected to generate 1.41 times less return on investment than Monster Beverage. But when comparing it to its historical volatility, Electronic Arts is 1.27 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 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,465  in Monster Beverage Corp on October 5, 2024 and sell it today you would earn a total of  628.00  from holding Monster Beverage Corp or generate 14.06% return on investment over 90 days.

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

Electronic Arts  vs.  Monster Beverage Corp

Electronic Arts

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Electronic Arts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Electronic Arts may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Monster Beverage Corp

Risk-Adjusted Performance

0 of 100

OK

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 uncertain basic indicators, Monster Beverage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Monster Beverage

The main advantage of trading using opposite Electronic Arts and Monster Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts 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 Electronic Arts 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.