Correlation Between Monster Beverage and Schlumberger

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

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

Diversification Opportunities for Monster Beverage and Schlumberger

0.7

Correlation Coefficient

Monster Beverage  Schlumberger

Poor diversification

The 3 months correlation between Monster and Schlumberger is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Monster Beverage i.e., Monster Beverage and Schlumberger go up and down completely randomly.

Pair Corralation between Monster Beverage and Schlumberger

Assuming the 90 days trading horizon Monster Beverage is expected to generate 0.85 times more return on investment than Schlumberger. However, Monster Beverage is 1.18 times less risky than Schlumberger. It trades about 0.13 of its potential returns per unit of risk. Schlumberger Limited is currently generating about 0.08 per unit of risk. If you would invest  3,496  in Monster Beverage on September 17, 2024 and sell it today you would earn a total of  476.00  from holding Monster Beverage or generate 13.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Monster Beverage  vs.  Schlumberger Limited

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.

Schlumberger Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schlumberger Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Schlumberger may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monster Beverage and Schlumberger

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

The idea behind Monster Beverage and Schlumberger Limited 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.