Correlation Between Monster Beverage and Autohome

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

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

Diversification Opportunities for Monster Beverage and Autohome

-0.45

Correlation Coefficient

Monster Beverage  Autohome

Very good diversification

The 3 months correlation between Monster and Autohome is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Autohome in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autohome and Monster Beverage 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 Monster Beverage are associated (or correlated) with Autohome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autohome has no effect on the direction of Monster Beverage i.e., Monster Beverage and Autohome go up and down completely randomly.

Pair Corralation between Monster Beverage and Autohome

Assuming the 90 days trading horizon Monster Beverage is expected to under-perform the Autohome. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage is 1.27 times less risky than Autohome. The stock trades about -0.01 of its potential returns per unit of risk. The Autohome is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Autohome on September 23, 2024 and sell it today you would earn a total of  22.00  from holding Autohome or generate 1.38% return on investment over 90 days.

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

Monster Beverage  vs.  Autohome

Monster Beverage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Autohome

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Autohome is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Monster Beverage and Autohome

The main advantage of trading using opposite Monster Beverage and Autohome positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monster Beverage position performs unexpectedly, Autohome 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 Autohome will offset losses from the drop in Autohome's long position.

The idea behind Monster Beverage and Autohome 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.