Correlation Between Monster Beverage and Devon Energy

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

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

Diversification Opportunities for Monster Beverage and Devon Energy

-0.35

Correlation Coefficient

Monster Beverage  Devon Energy

Very good diversification

The 3 months correlation between Monster and Devon is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Monster Beverage i.e., Monster Beverage and Devon Energy go up and down completely randomly.

Pair Corralation between Monster Beverage and Devon Energy

Assuming the 90 days trading horizon Monster Beverage is expected to generate 0.92 times more return on investment than Devon Energy. However, Monster Beverage is 1.09 times less risky than Devon Energy. It trades about 0.21 of its potential returns per unit of risk. Devon Energy is currently generating about -0.08 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Monster Beverage  vs.  Devon Energy

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.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Monster Beverage and Devon Energy

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

The idea behind Monster Beverage and Devon Energy 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 Stocks Directory module to find actively traded stocks across global markets.