Correlation Between Monster Beverage and Gerdau SA

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

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

Diversification Opportunities for Monster Beverage and Gerdau SA

0.59

Correlation Coefficient

Monster Beverage  Gerdau SA

Very weak diversification

The 3 months correlation between Monster and Gerdau is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Gerdau SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gerdau SA 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 Gerdau SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gerdau SA has no effect on the direction of Monster Beverage i.e., Monster Beverage and Gerdau SA go up and down completely randomly.

Pair Corralation between Monster Beverage and Gerdau SA

Assuming the 90 days trading horizon Monster Beverage is expected to generate 0.88 times more return on investment than Gerdau SA. However, Monster Beverage is 1.13 times less risky than Gerdau SA. It trades about 0.13 of its potential returns per unit of risk. Gerdau SA is currently generating about -0.01 per unit of risk. If you would invest  3,574  in Monster Beverage on September 29, 2024 and sell it today you would earn a total of  482.00  from holding Monster Beverage or generate 13.49% return on investment over 90 days.

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

Monster Beverage  vs.  Gerdau SA

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.

Gerdau SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gerdau SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gerdau SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monster Beverage and Gerdau SA

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

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