Correlation Between Monster Beverage and MP Materials

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

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

Diversification Opportunities for Monster Beverage and MP Materials

-0.21

Correlation Coefficient

Monster Beverage  MP Materials

Very good diversification

The 3 months correlation between Monster and M2PM34 is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and MP Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MP Materials Corp 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 MP Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MP Materials Corp has no effect on the direction of Monster Beverage i.e., Monster Beverage and MP Materials go up and down completely randomly.

Pair Corralation between Monster Beverage and MP Materials

Assuming the 90 days trading horizon Monster Beverage is expected to generate 21.49 times less return on investment than MP Materials. But when comparing it to its historical volatility, Monster Beverage is 2.28 times less risky than MP Materials. It trades about 0.02 of its potential returns per unit of risk. MP Materials Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,028  in MP Materials Corp on December 26, 2024 and sell it today you would earn a total of  1,032  from holding MP Materials Corp or generate 50.89% 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.  MP Materials Corp

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.

MP Materials Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MP Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and MP Materials

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

The idea behind Monster Beverage and MP Materials Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.