Correlation Between Monster Beverage and Trane Technologies

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

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

Diversification Opportunities for Monster Beverage and Trane Technologies

0.23

Correlation Coefficient

Monster Beverage  Trane Technologies

Modest diversification

The 3 months correlation between Monster and Trane is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc 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 Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Monster Beverage i.e., Monster Beverage and Trane Technologies go up and down completely randomly.

Pair Corralation between Monster Beverage and Trane Technologies

Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.2 times more return on investment than Trane Technologies. However, Monster Beverage is 1.2 times more volatile than Trane Technologies plc. It trades about 0.02 of its potential returns per unit of risk. Trane Technologies plc is currently generating about -0.15 per unit of risk. If you would invest  4,056  in Monster Beverage on December 24, 2024 and sell it today you would earn a total of  43.00  from holding Monster Beverage or generate 1.06% return on investment over 90 days.

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

Monster Beverage  vs.  Trane Technologies plc

Monster Beverage

Risk-Adjusted Performance

Weak

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

Trane Technologies plc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Monster Beverage and Trane Technologies

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

The idea behind Monster Beverage and Trane Technologies plc 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.