Correlation Between Monster Beverage and McKesson

Can any of the company-specific risk be diversified away by investing in both Monster Beverage and McKesson 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 McKesson 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 McKesson, you can compare the effects of market volatilities on Monster Beverage and McKesson 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 McKesson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monster Beverage and McKesson.

Diversification Opportunities for Monster Beverage and McKesson

0.14

Correlation Coefficient

Monster Beverage  McKesson

Average diversification

The 3 months correlation between Monster and McKesson is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and McKesson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McKesson 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 McKesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McKesson has no effect on the direction of Monster Beverage i.e., Monster Beverage and McKesson go up and down completely randomly.

Pair Corralation between Monster Beverage and McKesson

Assuming the 90 days trading horizon Monster Beverage is expected to generate 4.39 times less return on investment than McKesson. But when comparing it to its historical volatility, Monster Beverage Corp is 2.02 times less risky than McKesson. It trades about 0.08 of its potential returns per unit of risk. McKesson is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  947,599  in McKesson on October 10, 2024 and sell it today you would earn a total of  251,969  from holding McKesson or generate 26.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Monster Beverage Corp  vs.  McKesson

Monster Beverage Corp

Risk-Adjusted Performance

6 of 100

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 strong basic indicators, Monster Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

McKesson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward-looking signals, McKesson showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and McKesson

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

The idea behind Monster Beverage Corp and McKesson 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.