Correlation Between Monster Beverage and NetEase

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

Diversification Opportunities for Monster Beverage and NetEase

-0.09

Correlation Coefficient

Monster Beverage  NetEase

Good diversification

The 3 months correlation between Monster and NetEase is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Monster Beverage Corp and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Monster Beverage i.e., Monster Beverage and NetEase go up and down completely randomly.

Pair Corralation between Monster Beverage and NetEase

Assuming the 90 days trading horizon Monster Beverage is expected to generate 1.47 times less return on investment than NetEase. But when comparing it to its historical volatility, Monster Beverage Corp is 2.09 times less risky than NetEase. It trades about 0.08 of its potential returns per unit of risk. NetEase is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  147,292  in NetEase on September 16, 2024 and sell it today you would earn a total of  14,307  from holding NetEase or generate 9.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Monster Beverage Corp  vs.  NetEase

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.

NetEase

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, NetEase displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monster Beverage and NetEase

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

The idea behind Monster Beverage Corp and NetEase 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.