Correlation Between Monster Beverage and TAL Education

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

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

Diversification Opportunities for Monster Beverage and TAL Education

0.25

Correlation Coefficient

Monster Beverage  TAL Education

Modest diversification

The 3 months correlation between Monster and TAL is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage and TAL Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAL Education Group 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 TAL Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAL Education Group has no effect on the direction of Monster Beverage i.e., Monster Beverage and TAL Education go up and down completely randomly.

Pair Corralation between Monster Beverage and TAL Education

Assuming the 90 days trading horizon Monster Beverage is expected to under-perform the TAL Education. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage is 1.78 times less risky than TAL Education. The stock trades about -0.01 of its potential returns per unit of risk. The TAL Education Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  565.00  in TAL Education Group on September 23, 2024 and sell it today you would earn a total of  33.00  from holding TAL Education Group or generate 5.84% 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.  TAL Education Group

Monster Beverage

Risk-Adjusted Performance

6 of 100

Modest

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

TAL Education Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TAL Education sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and TAL Education

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

The idea behind Monster Beverage and TAL Education Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .