Correlation Between Monster Beverage and Microsoft

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

Diversification Opportunities for Monster Beverage and Microsoft

0.66

Correlation Coefficient

Monster Beverage  Microsoft

Poor diversification

The 3 months correlation between Monster and Microsoft is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Monster Beverage i.e., Monster Beverage and Microsoft go up and down completely randomly.

Pair Corralation between Monster Beverage and Microsoft

Assuming the 90 days trading horizon Monster Beverage Corp is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, Monster Beverage Corp is 1.13 times less risky than Microsoft. The stock trades about -0.12 of its potential returns per unit of risk. The Microsoft is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  837,424  in Microsoft on September 17, 2024 and sell it today you would earn a total of  63,282  from holding Microsoft or generate 7.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Monster Beverage Corp  vs.  Microsoft

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 weak basic indicators, Monster Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Monster Beverage and Microsoft

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

The idea behind Monster Beverage Corp and Microsoft 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.