Correlation Between Monster Beverage and DR Horton

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

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

Diversification Opportunities for Monster Beverage and DR Horton

-0.63

Correlation Coefficient

Monster Beverage  DR Horton

Excellent diversification

The 3 months correlation between Monster and D1HI34 is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Monster Beverage i.e., Monster Beverage and DR Horton go up and down completely randomly.

Pair Corralation between Monster Beverage and DR Horton

Assuming the 90 days trading horizon Monster Beverage is expected to generate 0.67 times more return on investment than DR Horton. However, Monster Beverage is 1.48 times less risky than DR Horton. It trades about 0.21 of its potential returns per unit of risk. DR Horton is currently generating about -0.13 per unit of risk. If you would invest  3,355  in Monster Beverage on October 8, 2024 and sell it today you would earn a total of  734.00  from holding Monster Beverage or generate 21.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Monster Beverage  vs.  DR Horton

Monster Beverage

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 16 (%) 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.

DR Horton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Monster Beverage and DR Horton

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

The idea behind Monster Beverage and DR Horton 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.