Correlation Between Monster Beverage and American Express

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

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

Diversification Opportunities for Monster Beverage and American Express

0.86

Correlation Coefficient

Monster Beverage  American Express

Very poor diversification

The 3 months correlation between Monster and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Monster Beverage i.e., Monster Beverage and American Express go up and down completely randomly.

Pair Corralation between Monster Beverage and American Express

Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.79 times less return on investment than American Express. But when comparing it to its historical volatility, Monster Beverage is 1.29 times less risky than American Express. It trades about 0.13 of its potential returns per unit of risk. American Express is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  14,525  in American Express on September 17, 2024 and sell it today you would earn a total of  3,754  from holding American Express or generate 25.85% return on investment over 90 days.

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

Monster Beverage  vs.  American Express

Monster Beverage

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Monster Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and American Express

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

The idea behind Monster Beverage and American Express 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.