Correlation Between Monster Beverage and CVS Health

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

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

Diversification Opportunities for Monster Beverage and CVS Health

0.36

Correlation Coefficient

Monster Beverage  CVS Health

Weak diversification

The 3 months correlation between Monster and CVS is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 Corp are associated (or correlated) with CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of Monster Beverage i.e., Monster Beverage and CVS Health go up and down completely randomly.

Pair Corralation between Monster Beverage and CVS Health

Assuming the 90 days trading horizon Monster Beverage is expected to generate 4.3 times less return on investment than CVS Health. But when comparing it to its historical volatility, Monster Beverage Corp is 1.39 times less risky than CVS Health. It trades about 0.08 of its potential returns per unit of risk. CVS Health is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  89,469  in CVS Health on December 29, 2024 and sell it today you would earn a total of  47,131  from holding CVS Health or generate 52.68% 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 Corp  vs.  CVS Health

Monster Beverage Corp

Risk-Adjusted Performance

Modest

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

CVS Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CVS Health showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and CVS Health

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

The idea behind Monster Beverage Corp and CVS Health 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.