Correlation Between Monster Beverage and Transocean

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

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

Diversification Opportunities for Monster Beverage and Transocean

0.34

Correlation Coefficient

Monster Beverage  Transocean

Weak diversification

The 3 months correlation between Monster and Transocean is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Monster Beverage i.e., Monster Beverage and Transocean go up and down completely randomly.

Pair Corralation between Monster Beverage and Transocean

Assuming the 90 days trading horizon Monster Beverage is expected to generate 0.6 times more return on investment than Transocean. However, Monster Beverage is 1.68 times less risky than Transocean. It trades about 0.13 of its potential returns per unit of risk. Transocean is currently generating about 0.01 per unit of risk. If you would invest  3,521  in Monster Beverage on September 26, 2024 and sell it today you would earn a total of  483.00  from holding Monster Beverage or generate 13.72% 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.  Transocean

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.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Transocean 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 Transocean

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

The idea behind Monster Beverage and Transocean 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.