Correlation Between Monster Beverage and Merck

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

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

Diversification Opportunities for Monster Beverage and Merck

0.0

Correlation Coefficient

Monster Beverage  Merck

Pay attention - limited upside

The 3 months correlation between Monster and Merck is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck has no effect on the direction of Monster Beverage i.e., Monster Beverage and Merck go up and down completely randomly.

Pair Corralation between Monster Beverage and Merck

Assuming the 90 days trading horizon Monster Beverage is expected to generate 3.25 times more return on investment than Merck. However, Monster Beverage is 3.25 times more volatile than Merck Co. It trades about 0.03 of its potential returns per unit of risk. Merck Co is currently generating about 0.02 per unit of risk. If you would invest  3,247  in Monster Beverage on October 10, 2024 and sell it today you would earn a total of  705.00  from holding Monster Beverage or generate 21.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Monster Beverage  vs.  Merck Co

Monster Beverage

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monster Beverage are ranked lower than 9 (%) 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.

Merck

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Monster Beverage and Merck

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

The idea behind Monster Beverage and Merck Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.